Settlement offer tabled in
long- running Castor Holdings
real estate case
THE GLOBE AND MAIL
19 January 2015
A glimmer of hope has emerged in one of Canada’s longest-running and
most contentious legal cases.
A settlement offer has been tabled in the 23-year-old case involving
$1.5-billion of negligence claims filed against Coopers & Lybrand
Chartered Accountants over its audit of failed Montreal real estate
company Castor Holdings Ltd., which collapsed in 1992. Castor provided
high-yield mortgage loans to developers, but was accused of grossly
overstating its revenues and loan portfolio in its financial statements
Representatives of Coopers & Lybrand have proposed to pay
$220-million to resolve all outstanding claims alleging negligence in
its duties as Castor’s auditor, saying that continuing the court
battles will leave no money for anyone. The money would come in part
from remaining Coopers & Lybrand assets and from contributions by
former partners of the audit firm.
Former Coopers & Lybrand partner Michael Macey said the litigation
has been “calamitous” for all the parties involved.
In an affidavit filed in court in December, Mr. Macey said 275 partners
of the audit firm are facing financial ruin from Castor Holdings
claims, even though most had nothing to do with the Castor audit. He
said the claims could total an average of $5-million per audit partner.
“If a resolution cannot be reached, the continuation of the prolonged
Castor litigation may ultimately force many of the remaining defendant
partners to file proposals or assignments in bankruptcy,” Mr. Macey
Coopers & Lybrand merged with Price Waterhouse in 1998 after the
Castor Holdings case was under way, but a separate company remained
behind to hold the remaining assets of Coopers & Lybrand and manage
the litigation against it.
Chrysler Canada Inc., which is one of the largest creditors with claims
against Coopers & Lybrand, is opposing the settlement proposal.
Chrysler’s employee pension plan was an investor in Castor Holdings,
and the firm has a $433-million outstanding claim against the auditors.
In a legal filing earlier this month, Chrysler said it was not
appropriate for the Coopers & Lybrand numbered company to file for
bankruptcy protection under the Companies’ Creditors Arrangement Act
(CCAA) in December as a strategy to manage the settlement process.
Chrysler said CCAA legislation should not be used to shield former
audit partners from their liabilities.
Chrysler said the Coopers & Lybrand group delayed the court cases
against it for years with a “scorched earth” litigation strategy, using
up much of its insurance money that could have gone to claimants.
“To grant discretionary relief under the CCAA in the particular
circumstances of this case would be to reward the conduct of the former
partners as defendants who over the past 22 years have delayed the
inevitable,” the Chrysler motion says.
In a ruling last week, however, Justice Frank Newbould of the Ontario
Superior Court rejected Chrysler’s objection and upheld a December
decision allowing the Coopers & Lybrand numbered company to seek
Justice Newbould said plaintiffs representing 71 per cent of the value
of the claims against Coopers supported the CCAA filing, while Chrysler
represents the remaining 29 per cent of the value of the claims.
He said the other creditors – which include a group of Canadian and
German banks – argued in court that they believe the time is now ripe
to resolve the case and they have seen a change in attitude a new
committee of Coopers & Lybrand partners, giving them hope a
settlement deal is finally possible.
“Whether the banks are correct in their judgments and whether they will
succeed in this attempt remains to be seen, but they should not be
prevented from trying,” Justice Newbould wrote in his Jan. 12 decision.
While 96 different parties launched negligence cases against Coopers
& Lybrand over the Castor audit, 56 of the cases have been settled
or discontinued over the years, leaving 40 still outstanding.
Only one case – involving claims by the estate of deceased businessman
Peter Widdrington – was concluded in court following a lengthy trial,
with a Quebec judge ruling in 2011 that Coopers & Lybrand was
negligent for its poor audit work.
The decision was expected to serve as a basis to resolve all other
outstanding claims, but lengthy trials have been scheduled for
remaining claims because they had specific issues that must determined
beyond the scope of the Widdrington decision.
Auditors negligent in Castor Holdings collapse, judge
The Globe and Mail
15 Aprirl 2011
A Quebec Superior Court judge has ruled that the auditors for a
real-estate-investment company at the centre of a $1.6-billion
financial collapse were negligent, ending a 12-year legal battle by
investors in Montreal-based Castor Holdings Ltd.
“The whole team at our firm feels incredibly exhilarated,” said Mark
Meland of Fishman Flanz Meland Paquin LLP, one of the lead lawyers
acting for the investors in Castor, which collapsed in 1992.
“It’s a big, big win.”
Despite the epic length of the case, which is believed to be the
longest trial in Canadian history, Friday’s ruling is not likely to be
the last word. Prior to the result, both sides said an appeal was
expected, no matter who won.
The Castor litigation, which is also believed to be the largest
auditors’ negligence case in Canada, could end up having broader
implications for the auditing profession across the country.
Many shareholder lawsuits against auditors don't get very far because
of previous court decisions that auditors can’t be held professionally
responsible for misrepresentations by clients, said Toronto-based
forensic accountant Al Rosen.
Friday's decision may help bolster the case for auditors'
responsibilities in situations where fraud or other financial
irregularities occur, he said.
“I hope it wakes up the rest of Canada, but I'm not expecting any
immediate change,” he said. “Perhaps it will encourage lawmakers to
pass tougher legislation.”
Castor was the creation of German-Canadian businessman Wolfgang
Stolzenberg, who is on the RCMP’s wanted list for alleged fraud and
believed to be living in Germany.
Following the collapse, a group of investors – including major European
banks, Chrysler Canada Inc.’s pension fund and two Canadian credit
unions – filed lawsuits totalling about $1-billion against Coopers
& Lybrand, Castor’s auditor, allegedly it failed to properly audit
Their case has dragged on for more than 16 years, 12 of them in court,
and included the filing of more than 18,000 exhibits.
In a hefty 752-page decision released Friday, Madam Justice Marie
St-Pierre of the Quebec Superior Court ruled that Coopers & Lybrand
failed to perform its professional services as auditors, in accordance
with generally accepted auditing and accounting standards.
She said Coopers & Lybrand also issued “faulty opinions” concerning
Castor’s financial situation.
“This outcome is disappointing for our clients,” said Yvan Bolduc of
Heenan Blaikie LLP, a member of the legal team acting for the
defendants. He did not rule out an appeal.
“We’re studying [the decision] and when we are done, we will make the
appropriate recommendation to our clients.”
Judge St-Pierre’s judgment relates directly to one investor’s case,
that of Peter Widdrington – the former chief executive officer of John
Labatt Ltd. and chairman of the Toronto Blue Jays baseball club – who
died in 2005, when the trial was in its seventh year. The Widdrington
ruling sets out the common issues and is binding on other pending
actions brought against Coopers & Lybrand by other investors in the
The judge ruled that Mr. Widdrington suffered damages as a direct
result of negligence on the part of Coopers & Lybrand and ordered
that his estate be compensated $2.7-million plus court costs and
The judgment concluded that Castor’s audited financial statements for
1988, 1989 and 1990 were materially misstated and misleading, and that
Coopers & Lybrand periodically issued other faulty opinions on its
financial position from 1988 to 1991.
The findings of professional negligence are applicable to and binding
in respect of the other pending actions against Coopers & Lybrand,
which add up to more than $1-billion, according to Mr. Meland.
Mr. Meland, who was present on the first day of the trial back in
September of 1998, said it’s gratifying that such a long and arduous
legal journey has ended with a win that essentially upholds all of the
principal positions put forward by the plaintiff.
Among the reasons the trial – which comprised two proceedings – took so
long were the difficulties of gathering evidence from dozens of Castor
offices in Canada and abroad, plus an interruption when the presiding
judge underwent heart surgery and subsequently had to be replaced.
EY agrees to $10 million settlement with New York
By Jeff Buckstein
17 July 2015 issue
Accounting firm Ernst & Young’s United States office has agreed to
pay New York state $10 million (all figures U.S.) to settle a civil
lawsuit in connection with EY’s audit of Lehman Brothers Holdings Inc.
prior to the investment bank’s decision to file for bankruptcy in 2008.
While the amount ultimately paid was only a fraction of the damages
initially sought, the settlement will have major ramifications for
auditors, say experts.
“After many years of costly litigation we are pleased to put this
matter behind us, with no findings of wrongdoing by EY or any of its
professionals,” EY spokesperson John LaPlace said.
The lawsuit, originally for more than $150 million in damages, was
launched in December 2010. New York State alleged that “E&Y
substantially assisted Lehman … engage in a massive accounting fraud,
involving the surreptitious removal of tens of billions of dollars of
securities from Lehman’s balance sheet in order to create a false
impression of Lehman’s liquidity, thereby defrauding the investing
John Coffee, a professor at Columbia University Law School in New York
City, predicted that what he termed “a large settlement against an
accounting firm” will resonate throughout the profession.
His view was echoed by Janne Chung, an associate professor of
accounting with York University’s Schulich School of Business in
“In spite of this settlement being only $10 million [compared to $150
million], auditors should still be looking over their shoulders, and
making sure they cross their T’s and dot all their I’s,” she said.
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