A failed Singapore oil trader who owes creditors more than $3.5 billion is suing Deloitte & Touche LLP, because the accounting firm has not discovered "serious irregularities" in its financial statements in 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 trading losses of $808 million were not reflected in the company's financial statements, according to a court filing.
“Deloitte has not discovered the irregularities and material misstatements” in Hin Leong's financial cases, alleges a March 5 lawsuit filed in the Singapore Supreme Court. “Deloitte has acted in breach of the terms of its engagement with the plaintiff.”
A Deloitte representative said the company cannot comment on legal matters pending in court. Drew & Napier LLC, the law firm representing Hin Leong in this case, declined to comment.
In a statement last year, Deloitte said its audit of Hin Leong's accounts was "conducted with the highest standards of auditing and compliance with the information disclosed to us at the time."
"We stand behind the quality of our work," a Deloitte spokesperson said in the April 2020 statement
There is a hearing in the case next week.
The oil trading company began to unravel last year after misguided energy bets that eventually led to one of the biggest-ever collapses in the Asian city-state. The trading losses led to loan repayment requests from more than 20 banks, including London-based HSBC Holdings Plc and Singaporean DBS Group Holdings Ltd. The case also prompted several major banks to review their exposure to commodities trading.
According to the lawsuit, Deloitte audited Hin Leong's financial statements for each of the fiscal years 2014 through 2019 and issued "approved opinions." The company had, in fact, been insolvent since at least 2012, and its assets were overstated, the lawsuit alleges. .
"The material misstatements in the plaintiff's audited financial statements have resulted in several banks and financial institutions being grossly misled about its financial health and state of affairs," Hin Leong claimed in the lawsuit. "Deloitte knew or should have known that these banks and financial institutions were intended users of the plaintiff's audited financial statements and would have relied on them to renew funding."
The New York-based accounting firm signed Hin Leong's 2019 financial statements, which reported a 69% increase in profit from the previous year, to $78.2 million. The March 12, 2020 report showed assets of $4.6 billion. A month later, Hin Leong was placed in interim judicial management, claiming liabilities of $3.5 billion and assets of only $257 million, according to the lawsuit.
"Had Deloitte properly performed its audits of the plaintiff's financial statements, Deloitte would have discovered the material misstatements," and would not have issued unmodified auditors' reports, the lawsuit alleges. As a result, "the fraudulent trade and wrongful actions by the directors and former director" of Hin Leong would have been discovered much earlier.
Lim, 79, has been charged with forgery. Funds, including bank accounts, property and club memberships – and those of his two children – have been frozen by the court. Lim has denied the forgery claim.
Hin Leong has been led by court-appointed managers Goh Thien Phong and Chan Kheng Tek since April 2020 and was put into liquidation in March this year.
The suit is adding to a wave of woes for global accounting firms following scandals. Deloitte paid $80 million to Malaysia this month in a settlement over the company's control of the state fund 1MDB. The company said in 2018 that it was cooperating with Malaysian authorities and sticking to its work.
Ernst & Young LLP would not have discovered a missing 1.9 billion euros at the collapsed German payment provider Wirecard AG. An EY partner said his company fell victim to "criminals" at Wirecard, dismissing allegations that they hadn't done enough to expose wrongdoing at the now-defunct payment processor.
Photo: Ships in the Singapore Strait off the coast of Singapore, Tuesday, November 3, 2020. Photo credit: Lauryn Ishak/Bloomberg.
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