Monday 21 September 2009

Akai trial on hold for auditors to be quizzed

The US$1 billion negligence trial against Ernst & Young over its role in the collapse of former client Akai Holdings was put on hold yesterday following explosive allegations that the accounting firm faked and doctored legal evidence.

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Akai trial on hold for auditors to be quizzed

Naomi Rovnick
19 September 2009

The US$1 billion negligence trial against Ernst & Young over its role in the collapse of former client Akai Holdings was put on hold yesterday following explosive allegations that the accounting firm faked and doctored legal evidence.

On Wednesday, the first day of the six-month High Court case, Akai liquidators claimed Ernst & Young’s evidence was shot through with documents that were false or had been tampered with, allegations Mr. Justice Michael Stone called “bombshells”.

The trial was postponed until Tuesday so Ernst & Young’s lawyers can interview staff who worked on the audit and the firm can carry out what its QC, Mark Hapgood, called “intensive internal investigations”.

The liquidators allege Ernst & Young staff tampered with Akai audit files after the company folded. They claim the questionable documents had found their way into the auditor’s court pleadings, witness statements and expert reports.

Akai was a global consumer electronics giant, listed in Hong Kong, which collapsed in 1999 in suspicious circumstances after reporting a US$1.8 billion loss. Its founder, James Ting, was jailed in 2005 for false accounting but released in 2007 after the Court of Appeal found errors in the prosecution’s case.

In a statement last night, Ernst & Young said: “We are treating these allegations with the utmost seriousness. Actions of this nature are fundamentally at odds with our firm’s values.”

Three of the four Ernst & Young staff to be interviewed about their roles in auditing Akai in the 1990s are now very senior within the firm. They are David Sun Tak-kei, chairman of Ernst & Young China; Francis Wong, the partner in charge of audit for central China; and Edmund Dang, an audit partner in Hong Kong.

Dang has also been accused of tampering with evidence. C.T. Kwok, a retired former audit partner, is also being questioned. Two senior partners at Ernst & Young’s law firm Barlow Lyde & Gilbert are handling the interviews.

The liquidators had been expected to open the negligence case with an explosive claim that Ting siphoned US$800 million from Akai before its collapse and Ernst & Young was responsible for not noticing.

Then the entirely unexpected happened. Last Friday, after requesting them for months, the liquidators, Borrelli Walsh, finally obtained original versions of Ernst & Young’s Akai files. They handed the originals to handwriting and computer forensic experts and claim to have found more than 80 documents were doctored or faked.

Leslie Kosmin QC, for the liquidators, claimed Edmund Dang, who audited Akai in the two years before its collapse, had tampered with documents from previous years relating to Akai’s land holdings. Dang then cited the papers in his witness statement but the statement concealed his modifications, Kosmin alleged.

Kosmin has claimed a group of Ernst & Young Akai files dated 1994-99 were altered in 2000, the year Akai was wound up.

And he has alleged documents recording that James Ting had verified the truthfulness of Akai’s 1999 accounts were first drafted by the firm nine days after the accounts were published.

Kosmin also claims someone in Ernst & Young back-annotated Akai papers to create a false audit trail leading to faked documents.

“We need to get to the bottom of this,” barrister Hapgood said.