Daingerfield, Texas (Sept. 20, 2004) -- Ernst & Young and its former consulting unit, Cap Gemini, have agreed to pay a combined $20 million to settle a class-action lawsuit in which clients sued them for overcharging them for travel expenses, putting an end to litigation dating back three years.


Miller County Circuit Judge Kirk Johnson gave preliminary approval to the settlements, under which Ernst & Young will pay $18 million while Cap Gemini will pay $2 million, Jeffrey Angelovich, an attorney for the plaintiffs and a partner at the Texas law firm Nix Patterson & Roach, told WebCPA.


The agreement resolves a class-action lawsuit originally filed in Miller County, Ark., in October 2001, which alleged that the two firms, along with PricewaterhouseCoopers, KPMG, and its former consulting unit, BearingPoint, fraudulently overcharged clients for costs and expenses paid to third-party travel vendors by billing clients for the full face amount of costs, while at the same time receiving back-end rebates from vendors through confidential contracts.


The suit alleged that the firms overbilled their clients in excess of $100 million for travel-related expenses by billing them for the full face amount of certain expenses while pocketing undisclosed rebates and volume discounts received under contracts with various third-party vendors. In some cases, the rebates retained by the accounting firms reached and exceeded 40 percent of the purchase price of the travel-related services, according to the lawsuit. The complaint also alleged that the firms conspired to coordinate their travel departments, to obtain and retain back-end rebates, and to keep the existence and retention of those rebates from their clients.


"We are pleased to have resolved this issue in a reasonable and equitable manner. We now bill clients directly at the discounted rates we receive from travel companies, having changed our policy in January 2002," Ernst & Young spokesman Charles Perkins said.


Former PwC client Warmack-Muskogee LP, a Texarkana-based shopping mall operator, was the lead plaintiff in the complaint, which also included former Ernst & Young client E-Z Mart Corp., the owner of a chain of convenience stores.


KPMG and BearingPoint resolved their portion of the class-action suit back in April, by agreeing to separate settlements of $17 million each, while PwC settled in late December for $54.5 million. All of the firms denied any wrongdoing and all have discontinued taking back-end incentive payments.


As part of the settlements, Angelovich said that current clients will get certificates that can be used toward the cost of continued professional services provided, while former clients will receive certificates redeemable for cash at 60 percent of face value. All of the firms also agreed not to accept back end-rebates for five years unless they pass them on to clients or disclose them up front.


-- Melissa Klein Aguilar

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