Legal News

Maker of Dreamsicle Figurines Wins Tidy Verdict over KPMG

By Nathan Koppel

It’s not often that a Big Four accounting firm gets hit with a multi million-dollar jury verdict, as most either get dismissed or settled. But on Friday, KPMG LLP was hit with a $31.8 million verdict in a case alleging that the accounting firm negligently audited the books of a New Jersey company.

“We don’t believe there is a factual basis for this verdict and [we] plan to appeal,” a KPMG spokesman said. “We’re confident that we’ll prevail on appeal.”

The suit was brought by a California company called Cast Art Industries, which is no longer operational. It alleges that in 1998 and 1999 Papel Giftware Inc. of New Jersey and its parent company overstated their revenue and profits, in part by creating invoices for sales that never occurred and by purposely double-invoicing customers for orders that had been placed once. KPMG, which audited the company in those years, allegedly failed to disclose the inflated revenue.

Cast Art Industries, which made giftware and collectibles, including the beloved Dreamsicle line of statuettes (one of which is pictured), acquired Papel in 2000 for $34 million — an amount allegedly lost when the accounting irregularity surfaced.

The trial, in New Jersey state court, lasted for more than four weeks.

“The verdict is believed to be one of the largest ever rendered against KPMG,” Michael Avenatti, lead plaintiffs counsel said, adding that damages will exceed $41 million when interest is added.

Full post as published by Law Blog - WSJ.com on October 13, 2008 (boomark / email).