Auditors Could Face Refco Suits

Ernst & Young and Grant Thornton may find themselves fending off legal claims of professional negligence and fraud from Refco shareholders in the wake of a report from the defunct financial company's bankruptcy examiner.

Refco went bust in 2005 after a series of "round trip" loans were uncovered that showed the company tried to hide bad debts just before an audit or the close of an accounting period. A report from Joshua Hochberg, an examiner appointed by the bankruptcy court, points the blame at Grant Thornton, which took over the auditing of Refco from Arthur Andersen, and Ernst & Young, which served as Refco's tax advisor.

While Grant Thornton did raise concerns about the loans, according to the report, the firm did not put enough pressure on Refco to change the way it recorded them. Both Grant Thornton and Ernst & Young insist, however, that they followed professional standards.

Also facing possible legal claims is Refco's law firm, Mayer Brown Rowe & Maw.

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