Moore Stephens, the City-based accountancy and advisory firm, is facing a $173.6m (£90m) negligence claim in one of the largest lawsuits to be brought with the help of independent “litigation funding”.
Under such arrangements, third parties, unconnected with either the claimant or defendant and ranging from specialised providers to hedge funds, put up finance to help pursue a claim in return for a share in the proceeds if it succeeds.
Litigation funding is in its infancy in the UK, although it has become more established in some overseas jurisdictions, notably Australia. Although controversial, it is seen by some lawyers as a valuable means of advancing bone fide claims.
The action against Moore Stephens, filed in London’s High Court just before Christmas, relates to the firm’s role as auditor in the late 1990s for Stone & Rolls, a failed British company linked to Zvonko Stojevic, a Croatian businessman.
It alleges audit negligence for 1996-1998; dishonesty on the part of two individuals involved inthe audit work; and a resulting failure to detect a “pattern of fraud” in which payments were made out of S&R to entities controlled by Mr Stojevic or his associates.
Moore Stephens, which ranked 13th in the international accounting bulletin league table in 2005, confirmed on Thursday that the claim had been filed, but said it considered it “wholly illegitimate” and would defend its position “vigorously”.
“The matter is the hands of our legal advisers and we have been instructed not to disclose or discuss further details on this claim,” said Richard Moore, senior partner.
Lawyers for the firm added that they viewed the allegations of dishonesty as “disgraceful” and believed no foundation for this charge had been offered.
The claim is being spearheaded by Ian Williams, the S&R liquidator at accountants Benedict Mackenzie, on behalf of the company’s creditors.
These are principally banks and other financial institutions, but also include HM Revenue & Customs.
In the S&R case, the funding was organised by Norton Rose, the City law firm acting for the liquidator, in conjunction with IM Litigation Funding, one of the main businesses in the UK that is targeting this area.
The funding potentially involves millions of pounds if the case goes to a full trial, and would be the largest facility that IMLF has put in place in the UK to date.