Help

BI’s Article search uses Boolean search capabilities. If you are not familiar with these principles, here are some quick tips.

To search specifically for more than one word, put the search term in quotation marks. For example, “workers compensation”. This will limit your search to that combination of words.

To search for a combination of terms, use quotations and the & symbol. For example, “hurricane” & “loss”.

Login Register Subscribe

Court rules fraud claims against Deloitte can be heard

Reprints

NEW YORK—A trust established under the bankruptcy reorganization plan of Reliance Group Holdings Inc. is a single entity under federal law and fraud claims the trust filed against Deloitte & Touche L.L.P. on behalf of bondholders can be heard, the New York Court of Appeals has ruled.

In a 6-1 opinion Thursday, the state appellate court reversed a lower court decision that had dismissed the claims against Deloitte and Jan A. Lommele, a principal of the firm who served as an actuary for RGH’s Reliance Insurance Co. unit.

Deloitte was the independent outside accountant for Reliance and two units, Reliance Financial Services Corp. and Reliance Insurance. As the Reliance companies headed toward bankruptcy, stockholders and bondholders began filing class actions in 2000 against the insurance group and its directors and officers, alleging misleading statements were made as to the insurance group’s financial condition.

Fraud alleged

A bankruptcy plan for RGH established the trust in 2005, according to court papers. The next year, the trust filed an action in New York Supreme Court alleging accounting fraud and auditing fraud on behalf of creditors, bondholders and others against Deloitte and Mr. Lommele.

Deloitte argued that the Securities Litigation Uniform Standards Act of 1998 pre-empted the suit because it was not brought on behalf of a single entity. The lower court subsequently held in 2007 that the trust was a single entity. However, the appellate division modified the decision in 2009, dismissing the bondholder claims and taking the position that the trust was not a single entity with regard to those claims.

In the recent ruling, the New York Court of Appeals said SLUSA does not preclude the bondholders’ actions, pointing out that the law specifies that “a corporation, investment company, pension plan, partnership or other entity, shall be treated as one person or prospective class member” as long as it is not established for the purpose of participating in a lawsuit.