Deloitte & Touche has offered a $32 million settlement for a class action lawsuit filed in respect the the Manhattan Investment Fund fraud, according to a legal notice published in The Royal Gazette on Friday.
The pay out will be available to individuals and companies that bought shares in the scam between October, 1995 and January, 2000 and lost money.
Deloitte & Touche were the Bermuda auditors of the scheme in which investors lost an estimated $430 million.
Now they have offered a settlement “of all claims arising out of or relating to Manhattan Investment Fund that have or could be asserted against Deloitte & Touche in this class action law suit that is now pending in the United States Court for the Southern District of New York”.
If the settlement is accepted, it will release Deloitte & Touche from any further possible action in connection with the failed fund.
And the case for the settlement will be heard in the Southern District of New York on January 23, when Judge Denise Cote will decide whether the settlement is “fair, reasonable and adequate and should be approved”.
In January, 2000, Manhattan Investment Fund, which was administered and audited in Bermuda, admitted that it had lost the millions after previously claiming it had made massive profits.
The scandal was unearthed after Deloitte & Touche LLP, the Bermuda auditors, withdrew approval for the fund’s financial statements for 1996, 1997 and 1998. A subsequent investigation by Ernst & Young affiliate Fund Administration (Bermuda) Inc. revealed the extent of the losses and accused the fund’s managers of misrepresentation.
Shareholders who lost their money in the scheme sued the fund managers, administrators and Berger.
There have already been several settlements in the Manhattan Investment Fund fraud case, and court and legal documents have shown how fund manager Michael Berger simply changed letter heads on financial statements, which were then approved by the company’s auditors and managers. About 280 investors lost money when the 30-year-old Austrian native’s attempts to sell short overvalued technology stocks failed to keep pace with a rising market – he was a few years too early.
Berger has cited mental illness and ineffective counsel by his previous attorneys as grounds for being able to withdraw his plea. He then created a false set of accounts, which passed unnoticed until Deloitte & Touche unearthed the problem in 2000, when the extend to the losses was discovered.
Last year the Securities and Exchange Commission announced the executives at an Ohio brokerage firm Fund Asset Management settled a federal civil complaint.
Court documents said the company was instrumental in aiding Berger carrying out his fraud and duping of the Bermuda-based fund administrator, Ernst & Young affiliate Fund Administration (Bermuda), and its Bermuda auditors, Deloitte & Touche.
Berger told the fund’s administrator, auditor and investors that Fund Asset Management was the majority holder of Manhattan’s cash and securities. He then sent statements that purported to come from Fund Asset Management that misrepresented the fund’s net asset value, the SEC said.
Shortly after this the Bermuda affiliate of Ernst & Young, Fund Administration (Bermuda) Inc., who locally administered the British Virgin Island’s hedge fund settled out of court and announced that the company will no longer be involved in the protracted legal battle in front of Judge Cote.
Berger was found liable for securities fraud and ordered to pay $20 million in a summary judgement issued on November 13, 2001 by a district court judge in New York.