Jury Verdict Against KPMG for Negligent Misrepresentations in Audit Report

October 4, 2010

A substantial jury verdict of $31.8 million was entered against KPMG in this case which was brought in the Superior Court of New Jersey, Middlesex County.  Plaintiffs, which included Cast Art Industries, LLC (“Cast Art”) and its shareholders, brought suit against KPMG, as an auditor, for failing to detect fraudulent misstatements in the financial statements of a client (Papel Giftware) that merged into plaintiff Cast Art.  They alleged KPMG was aware that they would be relying upon an audit report and other work papers of KPMG which the acquired company had forwarded on to plaintiffs before the merger.  They further alleged that KPMG negligently failed to detect fraudulent overstatements of revenue and of profits, and made negligent misrepresentations in its audit report as a result of its failure to detect the misstatements.  Plaintiffs further claim that they agreed to acquire Papel based on the accuracy of the Papel financial statements.  Subsequently, the merged company failed.  It appears that the jury based its award on what plaintiffs claimed Cast Art was worth immediately before the merger and the amount of a company loan which one of the Cast Art shareholders had to pay pursuant to a guaranty when the company became insolvent and defaulted on the loan.

Read full  Amicus Curiae Brief .