KPMG Avoids Damages Over College’s Financial Aid Audits As Malpractice Trial Concludes

Posted by David Siegel on Nov 21, 2019 10:07:06 PM

KPMG closings

CVN screenshot of KPMG attorney Nelson Apjohn delivering his closing argument 

Boston, MA - KPMG will not have to pay any damages in a college’s malpractice lawsuit alleging the firm should have detected fraud in the school’s financial aid office, after a Massachusetts state court jury on Tuesday found the accounting giant only 15 percent liable.

While the jury did award Merrimack College $100,000, Massachusetts law prohibits a plaintiff from collecting damages if their share of liability exceeds that of a defendant. 

Merrimack, a private college in North Andover, sued KPMG in 2014 claiming that audits it carried out from 1998 to 2004 should have alerted school officials that the director of financial aid at the time, Christine Mordach, was fraudulently issuing student loans and falsifying records. They claimed KPMG’s supposed negligence cost the school $7.4 million.

KPMG argued their audits were adequate, and that it was Merrimack’s responsibility to detect and prevent fraud by its own employees.

The full trial was webcast and recorded gavel-to-gavel by Courtroom View Network, and video of the full proceedings and hundreds of other trials are available with a subscription to CVN’s video library.

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The 13-day trial took place after a judge initially sided with KPMG, granting the company’s motion for summary judgment.

However last year the Massachusetts Supreme Judicial Court overturned that decision, ruling that Merrimack can seek damages from KPMG because Mordach was not part of the school’s senior management.

The decision marked the first time the Massachusetts’ high court weighed in on the issue of whether a client can sue its accounting firm over wrongdoing that it was supposedly involved in, setting up a trial that was closely-watched in the state due to its potentially industry-wide implications.

Mordach, who testified at the trial, was charged in 2014 with wire and mail fraud by federal authorities. She later pleaded guilty and received a one year prison sentence.

Both sides brought in expert witnesses to testify about the adequacy of KPMG’s auditing process.

Testifying for Merrimack, Simon Platt, founder of advisory firm StoneTurn, said KPMG didn’t investigate activities in the aid office with “sufficient skepticism,” suggesting their audits fell short of generally accepted professional standards.

Testifying for KPMG, former PricewaterhouseCoopers partner Lee Ann Leahy, who specialized in university and college audits, told the jury that KPMG “planned and performed reasonable audit procedures from 1999 to 2004.”

Merrimack was represented at trial by Elizabeth Mulvey and David Suchecki of Crowe & Mulvey LLP, a 9-attorney Boston-based firm that advertises itself as specializing in medical malpractice litigation.

KPMG is represented by George Salter, a partner based out of international law firm Hogan Lovells’ New York City office, and by Nicole Schiavo who is of counsel with the North Carolina-based firm Moore & Van Allen. They are backed up by local counsel Ian Roffman, Nelson Apjohn and Melanie Woodward with the Boston-based Nutter McClennen & Fish LLP.

Justice Janet Sanders presided.

The case is captioned Merrimack College v. KPMG LLP, case number 1484CV02098, in Suffolk County Superior Court.

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Topics: Malpractice, Accounting, Massachusetts