KPMG, one of the world's big four accounting firms, is facing sky-high claims.
After the financial fraud scandal of malaysia's 1MDB fund was exposed, KPMG was also involved as an auditor. The Financial Associated Press quoted media reports that the auditor KPMG was sued to demand 44 partners to compensate 5.64 billion US dollars. Previously, Goldman Sachs, as the issuer and underwriter of the 1MDB-related bonds, had agreed to pay US$2.5 billion to settle the scandal.
Due to an audit scandal
KPMG faces a US$5.6 billion claim
According to the Financial Associated Press, the Malaysian government, 1MDB and several subsidiaries have recently filed a lawsuit in local courts to demand us$5.64 billion in damages from partners at audit firm KPMG.
KPMG, one of the world's top four accounting firms
According to public information, 1Malaysia Development Berhad ("1MDB") is a sovereign fund established in 2009 by a malaysian national strategic development company. The fund was originally set up to finance Malaysian infrastructure and other economic transactions, but has since erupted in a rare scandal in which some senior officials and associates have misappropriated billions of dollars from the fund.
Between 2012 and 2013, Goldman Sachs helped the 1MDB fund issue bonds, raising a total of US$6.5 billion. The U.S. Department of Justice found that senior 1MDB officials and associates misappropriated about $4.5 billion from the fund to buy private jets, yachts, mansions, famous paintings by Picasso and Monet, and to invest in hollywood films.
In July 2016, a Hollywood production company was accused of using $100 million of the fund to invest in the hit movie "The Wolf of Wall Street." In mid-2017, leonardo, the film's lead actor, also voluntarily handed over gifts from the producers of "suspicious origin" due to his involvement in the 1MDB money laundering case, including the Marlon Brando Oscar Trophy.
Goldman Sachs later pleaded guilty and was punished and paid more than $2.3 billion in fines to the U.S. Department of Justice. The SFC of Hong Kong also fined Goldman Sachs Asia US$350 million for serious misalignment and deficiencies in management oversight, risk, compliance and anti-money laundering monitoring, resulting in the misappropriation of US$2.6 billion of the funds raised by the 1MDB's bond issuance.
Today, KPMG, the former auditor of 1MDB, is also facing sky-high claims. It is reported that the plaintiffs have filed a complaint with the court, involving a total of 44 partners of KPMG Malaysia, alleging breach of contract and negligence in their audit and certification work in the three financial years between 2010 and 2012. According to the complaint, the plaintiffs stated that a total of US$5.64 billion of 1MDB funds were misappropriated between 2009 and 2014, of which a total of US$3.197 billion was involved in the 2010-2012 fiscal years audited by KPMG.
The plaintiff argued that KPMG's audit reports over the years did not give a true and reasonable view of the financial position of the 1MDB Fund, which was exactly the opposite of the audit report issued by KPMG. At the same time, KPMG's mistake led to more subsequent bond issuances and the misuse of the funds raised.
KPMG is at the bottom of the "Big Four"
Although the amount of money involved is huge, the number that can finally land may not be so exaggerated.
With the 1MDB scandal still simmering, it is difficult to predict what penalties KPMG will eventually be punished. Red Star Capital called KPMG China and sent an interview letter regarding the US$5.64 billion claim faced by KPMG, but as of press time has not received a reply.
Compared with Deloitte, which later succeeded KPMG in auditing, it has reached a settlement with the relevant parties in Malaysia, with a settlement amount of US$80 million. It is worth mentioning that the audit institution of the 1MDB fund has been replaced in recent years, deloitte is the third audit institution of the fund, and the previous auditors of the fund are EY and KPMG, who have resigned from this job. But later Deloitte was unable to audit it, and it was replaced by PwC.
Coincidentally, it was recently reported that KPMG will pay about HK$650 million in Hong Kong, China, to settle the legal claims of China Forest(which has been delisted from Hong Kong stocks) fraud case. The China Forest Liquidator sued KPMG for failing to find management falsifying the company's forestry assets and revenue during the pre-listing audit of China Forest, and therefore demanded HK$1.3 billion in damages. The settlement reached by the parties today is about half the amount claimed. China Forestry had previously declared bankruptcy and was delisted by the Hong Kong Stock Exchange in February 2017.
In recent years, KPMG has been at the bottom of the Big Four accounting firms. KPMG employs 227,000 people worldwide in more than 100 countries and has global revenues of US$29.2 billion in FY2020. By comparison, with Deloitte's global revenue of US$47.6 billion, PwC's US$43 billion and EY's US$37.2 billion in FY2020, the gap widened for KPMG. However, the Asia-Pacific region remains KPMG's fastest growing region, and KPMG China's performance continues to grow.
On 16 July, the Chinese Institute of Certified Public Accountants released the "2020 Comprehensive Evaluation of Accounting Firms 100 Ranking Information", KPMG is still in the fourth place, behind PwC, EY and Deloitte, but the back of Tianjian and Fong have caught up, such as Fong's business income in 2020, the number of certified public accountants, etc. are far more than KPMG.
Red Star News reporter Li Weiming
Edited by Tao Yueyang
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