Deloitte sued for allegedly failing to find “irregularities” in audits of Singapore oil trader

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A failed Singapore oil trader who owes more than $ 3.5 billion to creditors sues Deloitte & Touche LLP, alleging that the audit firm failed to detect “serious irregularities” in its financial statements for more than ‘a decade.

Deloitte audited the books of Hin Leong Trading Ltd. for at least 16 years before the company collapsed last year when founding tycoon Lim Oon Kuin admitted that business losses of $ 808 million had not been reflected in the company’s financial statements , according to a court record.

“Deloitte has failed to detect material irregularities and inaccuracies” in Hin Leong’s financial affairs, according to a March 5 lawsuit filed with the Singapore High Court. “Deloitte acted in violation of the terms of its engagement with the claimant. “

A representative for Deloitte said the firm was unable to comment on the legal issues referred to the court. Drew & Napier LLC, the law firm representing Hin Leong in the case, declined to comment.

In a statement last year, Deloitte said its audit of Hin Leong’s accounts “was conducted with the highest auditing standards and in accordance with the information provided to us at the time.”

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“We stand behind the quality of our work,” said a spokesperson for Deloitte in the April 2020 press release

A hearing is scheduled for next week in this case.

Paris in the wrong way

The oil trading company began to collapse last year following counter-current energy bets that ultimately led to one of the biggest collapses on record in the Asian city-state. The business losses have triggered loan repayment requests by more than 20 banks, including London-based HSBC Holdings Plc and Singapore-based DBS Group Holdings Ltd. The case also prompted several large banks to review their exposure to commodity trading.

According to the lawsuit, Deloitte audited and issued “unqualified opinions” on Hin Leong’s financial statements for each of the 2014 to 2019 fiscal years. The company had in fact been insolvent since at least 2012 and the assets were overstated, according to the lawsuit. . .

“The material inaccuracies in the complainant’s audited financial statements have led various banks and financial institutions to be grossly misled as to the financial health and financial condition,” Hin Leong said in the lawsuit. “Deloitte knew or should have known that these banks and financial institutions were intended users of the applicant’s audited financial statements and would have relied on them to provide funding. “

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Few assets

The New York-based audit firm approved Hin Leong’s 2019 financial statements, which showed a 69% increase in profits from the previous year, to $ 78.2 million. The report dated March 12, 2020 showed assets of $ 4.6 billion. A month later, Hin Leong was placed under interim judicial management, claiming liabilities of $ 3.5 billion and assets of only $ 257 million, according to the lawsuit.

“If Deloitte had properly performed the audits of the plaintiff’s financial statements, Deloitte would have detected the material inaccuracies” and would not have issued unqualified audit opinions, according to the lawsuit. As a result, “the fraudulent business and illegal actions of the directors and former general manager” of Hin Leong would have been discovered much earlier.

Lim, 79, was charged with forgery. The assets, which include bank accounts, properties and club memberships – and those of her two children – have been frozen by the court. Lim denied the infringement allegation.

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Hin Leong was led by court-appointed directors Goh Thien Phong and Chan Kheng Tek since April 2020, and went into liquidation in March this year.

The lawsuit adds to a string of woes for global accounting firms following scandals. Deloitte paid Malaysia $ 80 million this month as part of a settlement regarding the company’s audit of the 1MDB public fund. The company said in 2018 that it is cooperating with Malaysian authorities and is maintaining its work.

Ernst & Young LLP reportedly failed to detect a missing € 1.9 billion from collapsed German payment provider Wirecard AG. An EY partner said his company had been the victim of “criminals” at Wirecard, dismissing claims that they had not done enough to uncover the wrongdoing of the now defunct payment processor.

Photograph: Ships in the Singapore Strait off Singapore, Tuesday, November 3, 2020. Photo credit: Lauryn Ishak / Bloomberg.

Copyright 2021 Bloomberg.

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