So, how much do you know about CIA, when it stands for a Corporate Integrity Agreement. A CIA with serious, C-suite clawback terms is a big part of the recent Glaxo $ 3 billion settlement with the federal government. Lawyers at Nutter Mclennen & Fish provide a cogent education in an online memo. Here’s part of the summary – it’s attention grabbing:
Update: This post updates a Feb. 20 post. The new news is a Law.com article regarding a new Madoff-related lawsuit in Florida naming a feeder fund (Tremont) and KPMG as defendants for alleged failures in due diligence and monitoring of investments placed with Madoff. The same article includes links to yet another article on clawback suits by the Madoff trustee.
According to the Law.com article, the Florida lawsuit includes the following allegations:
“The lawsuit contends a number of red flags should have made Tremont wary of investing with Madoff.
The plaintiffs contend they depended upon the information supplied by Tremont in making their investment decisions and received false reports indicating the value of their investments was steadily rising.
Plaintiffs also said they were led to believe Tremont diversified its investments instead of putting all the money in one basket. The complaint contends Tremont promised clients it would monitor the investments and change the strategy if necessary. The lawsuit contends Tremont would have found the fraud with proper oversight.
Instead of finding problems, however, the complaint said Tremont’s Rye Investment Management boasted its funds have “historically displayed steady and consistent performance, especially during market downturns,” implying a conservative investment scheme.
The lawsuit also states several plaintiffs reached out to Rye managers about how the funds were doing. A supervisor told one plaintiff that his accounts had not lost value despite market weaknesses last fall. A supervisor told another investor around the same time that the fund had not suffered losses because it was shielded from the subprime crisis.
The plaintiffs also maintain KPMG did not adequately do its job as auditor despite saying it performed its audits to national standards.
“KPMG’s audits failed to reveal the fact that the assets reported on each of the Rye funds’ financial statements did not actually exist,” the plaintiffs stated.
They sued for fraud, securities violations, negligence, negligent misrepresentation, breach of fiduciary duty, breach of contract and professional malpractice, and are seeking a jury trial.
“This is a case about the greed of investment professionals and their auditors taking priority over the most basic adherence to their contract, tort and fiduciary duties,” the complaint contends.”
The DOJ’s efforts against Stanford and UBS AG are much in the news these days, with a good UBS summary article here and images of DOJ litigation papers available here (look for links in the box on the right hand side.)
The question that occurs to me is: what kind of fall out and follow up lawsuits will emerge? We are seeing in the Madoff situation lots of efforts to pin financial losses and blame on advisers who connected investors to Madoff’s enterprise, and thoughts from lawyers at Sonnenschein and elsewhere regarding potential clawback claims by trustees and/or others. One would think the same result will follow here. Some interesting law likely will evolve as to whether or how much one professional has a duty to investigate another before making a recommendation or referral. There are existing claims and case law. See for example a law firm (Brown McCarroll) website article addressing liability of call centers, and an American Bar Association page with links to articles on claims against lawyers for allegedly negligent referrals. This all should make for some fascinating legal wrangling, with global tort choice of law issues.
The situations also may be a boon for multilingual lawyers.