COURT WON’T REMOVE BDO SEIDMAN AS A DEFENDANT IN LESLIE FAY SUIT

Byline: Jeff Siegel

NEW YORK — A federal judge denied a motion by BDO Seidman, the former auditor of The Leslie Fay Cos., to be removed from a class action suit brought by the apparel firm’s angry shareholders.
BDO, Leslie Fay’s independent auditor for 1990 and 1991, is named in the suit because of its alleged involvement in a massive three-year accounting scandal that landed Leslie Fay in Chapter 11 in April 1993. The shareholders contend BDO was negligent in endorsing financial statements during the time of the fraud because it either knew or should have known about Leslie Fay’s fraudulent entries.
BDO argued the amended complaint should be dismissed since BDO has no “direct liability” under the Securities Exchange Act of 1934, as the information endorsed was only in SEC filings and not provided to the investing public. But Judge William C. Connor, in a 32-page decision, wrote that BDO’s certifications of Leslie Fay’s books “were made in connection with the purchase or sale of securities.” As for BDO’s request to be removed as there are no allegations that it acted “with intent” to defraud, the judge ruled “a reasonable juror could infer that BDO engaged in manipulative or deceptive behavior.”

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