Audit Firms Not Liable in Ahold Fraud

The 4th Circuit rejected fraud claims against Deloitte & Touche and its Dutch affiliate. Ahold's fraudulent conduct, which was not at issue in this case, involved improper revenue recognition from a joint venture and from promotional allowances. Applying the Tellabs standard, the court held that the inference that the Deloitte defendants lacked the necessary scienter more compelling than any competing inference that they knowingly or recklessly perpetrated a fraud on Ahold’s investors.

The court found that Ahold actively deceived their auditors, and that "the stronger and more plausible inference is that the Deloittes were, like the plaintiffs, victims of Ahold’s fraud rather than its enablers. While the court observed that the firms might have done more to detect and prevent the fraud, it was not actionable misconduct by the firms given that their client actively conspired with others in order to deprive the accountant of accurate information about the client’s finances.

Public Employees' Retirement Assoc. of Colorado v. Deloitte & Touche