August 2020

Court Sides With KPMG in $1.1B Negligent Misrepresentation Lawsuit

Central America - Mexico | United States - Delaware

On August 21, 2020, the Court of Chancery for the State of Delaware dismissed plaintiffs’ claims seeking $1.1 billion against Faegre Drinker client KPMG LLP, an accounting services firm. KPMG is organized as a Swiss verein, with affiliate entities located throughout the world. KPMG Mexico began auditing Oceanografia S.A. de C.V. (OSA), formerly the largest oil and gas service company in Latin America, in 2010.

In 2013, the Mexican government discovered that OSA’s employees had defrauded Banamex, OSA’s bank and the Mexico-​based affiliate of Citibank, out of millions of dollars through the submission of fraudulent cash advance transactions. Once the fraud was uncovered, Banamex pulled its line of credit and OSA was forced into bankruptcy. Creditors of OSA brought suit in Delaware against KPMG Mexico, the auditor of both OSA and Banamex, and KPMG LLP, the entity that operates in the United States and audited Citibank. Plaintiffs claimed these KPMG entities engaged in malpractice by failing to uncover the fraudulent scheme in their audits and sought $1.1 billion in damages.

In 2019, the Court dismissed the plaintiffs’ direct claims against KPMG LLP on the grounds that KPMG LLP owed no duty to OSA’s creditors when auditing Citibank; however, the Court allowed plaintiffs to reassert vicarious liability theories against KPMG LLP, namely that KPMG LLP controlled or was the principal of KPMG Mexico and, as a result, KPMG LLP should be held vicariously liable for the allegedly faulty audit work of KPMG Mexico on the OSA and Banamex audits.

In August 2020, the Court sided with KPMG LLP, stating that the plaintiffs failed to show that KPMG LLP should be held responsible for KPMG Mexico’s actions as it relates to the OSA or Banamex audits, thus dismissing all vicarious liability claims with prejudice.

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