A Boston-based investment fund has received the go-ahead from a state court in Virginia to move ahead with a $51 million lawsuit against accounting firm Goodman & Co. LLP.
The Fairfax County Circuit Court of Virginia denied the second motion filed by Goodman to dismiss the lawsuit yesterday, meaning that the case will now move into discovery. The fund, Costa Brava Partnership III LP, has accused the Norfolk, Va.-based accounting firm of delivering an inaccurate audit opinion on the 2004 annual report of communications company of Ashburn, Va.’s Telos Corp.
In legalese, the suit seeks $51 million in compensatory, treble and punitive damages for alleged claims of “conspiracy, tortious interference with contractual relations, and aiding and abetting breach of fiduciary duties.”
Costa Brava filed its suit in December 2005, saying that Goodman delivered a clean audit opinion in spite of an “intentional material misclassification” of Telos's obligation to redeem its public securities in December 2005 as a long-term obligation (which would not have requirement payment in 2005), rather than as a short-term obligation. The lawsuit also claims alleges that Goodman's audit opinion was false in respect to Telos understating the total value of its obligation by more than $30 million.
In two letters sent to Goodman before the filing of the lawsuit, Costa Brava says that it questioned a number of figures contained in the 2004 report, asking the accounting firm to explain the basis for its clean audit opinion. While Costa Brava filed both letters with the Securities and Exchange Commission, the funds says that it received no response from Goodman.
Representatives for Goodman did not return calls by press time. The firm was ranked No. 38 on Accounting Today’s 2006 list of Top 100 Firms, with revenues of $56 million.
