McGladrey & Pullen has been sued for $550 million by a bankruptcy trustee for Sentinel Management Group.
The suit, filed in a Chicago bankruptcy court, accuses the accounting firm and one of its partners, G. Victor Johnson, of contributing to hundreds of millions of dollars of losses at the investment advisory company by ignoring blatant violations of federal laws by Sentinel's former senior executives.
McGladrey audited the company's 2006 financial statements. The bankruptcy trustee, Frederick Grede, accused the firm of certifying false financial statements and creating accounting entries that led to them. Grede said in his lawsuit that the firm's audit "failed to satisfy the most basic standards of the accounting and auditing profession" and that it assisted "in the creation of a fictitious management agreement" to justify the payment of approximately $1 million to Sentinel Investment Group, a company controlled by Sentinel's CEO.
"M&P ignored its duties to approach the audit with professional care and skepticism, and in some instances, M&P itself participated in the wrongdoing committed by a Sentinel insider," said the complaint.
McGladrey's general counsel did not respond to a phone call seeking comment.
Grede has filed other lawsuits seeking to recover money for creditors of Sentinel, including a $370 million suit against former chairman Philip M. Bloom, his son CEO Eric Bloom as well as trader Charles Mosley. A Bank of New York Mellon unit has also filed suit against the trustee and he has filed a countersuit.
The Securities and Exchange Commission filed its own suit last August against Sentinel, accusing the company of misappropriating, commingling and leveraging client assets, leading eventually to Sentinel's bankruptcy.
Grede declined to comment on the pending litigation and when he expects the case to go to trial.
