PwC pays $22.5m to settle Lauer case

PricewaterhouseCoopers has agreed to pay up to $22.5 million for botched audits of Michael Lauer’s Lancer fund complex, according to documents filed in Federal court in Miami last week by Marty Steinberg, receiver for the funds and other Lancer entities.

The settlement, which comes without an admission of liability, appears to leave Citco Fund Services, administrator for several Lancer funds, as the last deep pocket available to investors, who lost around $600 million in the fraud. Lauer is alleged to have misrepresented the value of his funds by, among other things, painting the tape to make his holdings in a range of microcap companies appear more valuable than they were.

The lesson for hedge fund investors from this settlement: check which office of the household-name auditor is doing the work. The settlement notes that PwC Netherlands Antilles, “the entity which audited the financial statements in issue, had limited resources, insurance and assets with which to satisfy judgments that might have been entered against it;” PwC International “appears to have had no involvement in the audits at issue,” while PwC US, “with significant financial wherewithal” was only minimally involved.

As one observer noted in forwarding the document: “Given that PwC NA’s audits were indefensible”—according to earlier filings, its final audit was issued after Citco warned of possible problems—“I can’t help but think PwC is getting off lightly. Of course, you might also draw the conclusion that the PwC name on an audit is worth about three cents on the dollar.”

The PwC entities were alleged to have issued false and misleading audit opinions and financial statements to investors, have committed or aided and abetted common law fraud, and committed professional malpractice by the manner in which they audited the funds. They denied all the claims.

Yards of deathless prose over the investors’ bodies.

Motion to Approve Stipulation and Agreement
SEC vs Michael Lauer et al
Jul. 18 2007

Earlier on NakedShorts

Stoler steals a wrist-tap
Aug. 1 2006

Lancer document dumpster diving
Mar. 7 2006