CPA Firm Faces $150 Million Lawsuit for Role in Seattle Ponzi Scheme

CPA Firm Faces $150 Million Lawsuit for Role in Seattle Ponzi Scheme

The nation's 11th largest CPA firm has been sued for $150 million and accused of failing to detect the largest Ponzi scheme in the history of the Pacific Northwest despite issuing clean opinion letters following several audits of the funds from 2001 to 2007.  Mark Calvert, the court-appointed trustee overseeing the liquidation of the Meridian Mortgage funds, filed the lawsuit in a Washington state court, accusing Moss Adams, LLP ("Moss Adams") of professional malpractice, negligent supervision, fraud, and violations of Washington's Consumer Protection Act.  The lawsuit, which also names alleged mastermind Frederick Darren Berg as a defendant, seeks monetary damages, disgorgement of profits received, and all fees and expenses incurred by Calvert, including attorneys' fees and expert fees.

The Meridian funds were created in 2001, and represented to potential investors that it invested in seller-financed real estate contracts and hard money loans.  Investors would then receive annual interest payments from the cash flow generated from these activities.  In total, approximately 750 investors entrusted $150 million to various Meridian entities.   To convince investors of the legitimacy of Meridian, Berg hired Moss Adams to serve as the independent auditor of Meridian and its agent, MPM Investor Services, Inc. ("MPM") from 2001 to 2007.   Additionally, Moss Adams also performed other functions for Berg personally, including his taxes.

In its role as auditor, Moss Adams issued clean audit/opinion report during audits performed from 2001 to 2007.  These audit reports were then touted to potential investors to demonstrate the legitimacy of the operation.  According to the lawsuit, Moss Adams failed to follow both internal and industry standards in conjunction with the audits of various Meridian funds.  Among these allegations is the claim that the audits performed by Moss Adams contained numerous violations of the Generally Accepted Auditing Standards ("GAAS").   By turning a blind eye to numerous "red flags" associated with Berg's scheme, the complaint alleges that Berg personally benefited by tens of millions of dollars, and also allowed Moss Adams to generate substantial fees for the firm and its partners.  

The trustee, Calvert, has estimated that, excluding any proceeds from the Moss Adams lawsuit, investors will recover approximately 10% of their losses.  

For more news and analysis of Ponzi schemes, visit Ponzitracker, a blog by Jordan Maglich, an attorney at Wiand Guerra King P.L.

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Comments

Anonymous
Anonymous
  • 12-16-2011

A Ponzi scheme is a scam investment designed to separate investors from their money. It is named after Charles Ponzi, who constructed one such scheme at the beginning of the 20th century, though the concept was well known prior to Ponzi.