Proposed class action lawsuits seeking $650 million in damages have been filed against KPMG LLP for its role as the auditor of now-defunct Poseidon Concepts Corp.
A trio of law firms — Siskinds LLP, Siskinds Desmeules and JSS Barristers — announced Tuesday that they have filed proposed securities class actions against KPMG in Ontario, Alberta and Quebec related to its role as auditor of a TSX-listed company, Poseidon Concepts, which is in bankruptcy protection.
The allegations have not been proven, and the suits have not been certified as class actions. Earlier, proposed class actions have been brought against Poseidon Concepts itself, certain officers and directors, and the firm’s underwriters. Those suits haven’t been proven, or certified as class actions either.
The proposed class actions announced today are seeking damages of $651 million on behalf of investors who acquired securities of Poseidon Concepts before February 14, 2013 (which is when the company was cease traded by the Alberta Securities Commission).
They allege that KPMG certified that it had conducted audits of Poseidon Concepts’ financial statements in accordance with auditing standards. “Contrary to the picture painted in those financial statements, Poseidon was at all times in a precarious financial position,” the firms claim. “Following a series of revelations that Poseidon Concepts had massively overstated its revenues and assets, the market price of its shares plummeted by more than 95%. Poseidon Concepts has since filed for insolvency protection and its assets were sold for pennies-on-the-dollar.”
“Canadian investors rely on gatekeepers—including auditors—to review and opine on the finances of Canadian companies in exchange for substantial fees. When reviews and audits fail to uncover reporting issues, the financial impact on investors can be devastating,” said Dimitri Lascaris, a partner with Siskinds LLP.
In response to the proposed class actions, KPMG says that it is confident in its work, and promises to aggressively defend the litigation.
“We are confident that our services were provided in accordance with all applicable professional standards and the firm intends to strenuously defend the litigation,” it said in a statement. “While KPMG rejects the accusations and will vigorously defend itself in court, we have no further comment as the matter is currently before the courts.”