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MIAMI (Reuters)Risk consulting company Kroll Inc. has been hit with a lawsuit in federal court in Miami alleging gross negligence in a 2007 review it conducted of the business operations of accused swindler Allen Stanford.
Mr. Stanford has been accused by U.S. prosecutors of leading a $7 billion Ponzi scheme involving certificates of deposit issued by his bank in Antigua. He has denied any wrongdoing.
The suit against Kroll, a unit of Marsh & McLennan Cos. Inc., was filed in U.S. District Court for the Southern District of Florida May 21. It became the focus of media attention on Friday because of a report in the New York Post.
The complaint alleges Electri International, a Bethesda, Md.-based foundation for electrical contractors, lost a multimillion-dollar investment in the CDs of Stanford International Bank after retaining Kroll to evaluate the soundness of the bank and being given “a green light to invest” from the Miami office of the renowned security company.
“Instead of conducting a reasonable investigation and reporting negative information about SIB, its affiliates or its management, Defendant Kroll submitted a falsely positive report upon which Electri reasonably and foreseeably relied in deciding to maintain its SIB investments," the suit says.
"As a direct and proximate result of Defendant Kroll's gross negligence and breach of contract, Electri lost the entire principal amount it had invested, plus the interest it had earned through the date it received Defendant Kroll's Final Report, for a total of $6,363,455.72," it said.
Electri's contract with Kroll was signed by Tom Cash, who is identified in the complaint as Kroll's executive managing director for business intelligence and investigations in Latin America and the Caribbean.
The complaint said Mr. Cash was hired as a U.S. consultant of Allen Stanford in the late 1990s, shortly before the U.S. Treasury Department issued a 1999 advisory warning U.S. banks to scrutinize transactions involving Antigua due to corrupt practices or lax regulation of offshore banks.
"Defendant Kroll never disclosed Mr. Cash's connection with Mr. Stanford and the obvious conflict of interest that this relationship presented," the complaint says.
Mr. Cash declined to comment when contacted by Reuters on Friday morning. But a Kroll spokesman said the company had been paid $15,000 by Electri "to perform limited due diligence" in connection with an investment in SIB that Electri had made several years earlier.
"Kroll's report back to Electri made clear that, given the nature of the bank and the fact that it is less stringently regulated, it is inherently a greater risk," the spokesman said.
Asked about Cash's alleged links with Mr. Stanford, the spokesman would only say Kroll does not comment on individual employees.