Business Trilogy Funds accuses KPMG, partner of misleading...

Business
Trilogy Funds accuses KPMG, partner of misleading investors

• by: SARAH DANCKERT
• From: The Australian
• October 02, 2014 12:00AM

Sarah Danckert

Property Reporter
Melbourne
https://plus.google.com/109007774161499144775
A $700 million mortgage fund once managed by collapsed Gold Coast financier City Pacific is pushing ahead with a legal action against KPMG and one of its partners, accusing the top-tier accounting firm of unconscionable, misleading and deceptive conduct.
Trilogy Funds Management, which took over the management of the City Pacific First Mortgage Fund in mid-2009, 10 months after the fund’s then parent entity City Pacific was placed into liquidation, lodged the claim last week.
Along with the claims that KPMG and one of its top partners deceived and misled investors, Trilogy has also alleged that not only did KPMG breach its duties conducting the audit of the fund, the firm was aware of its breaches but signed off on the audit anyway.
“(KPMG partner Jillian) Richards was knowingly involved in KPMG’s contraventions,” Trilogy said in its statement of claim.
The managers of the fund, now known as Pacific First Mortgage Fund, are seeking an undefined amount from KPMG and Ms Richards over the allegedly incorrect audit.
“City Pacific was vulnerable in that it was unable to protect itself from the consequences of KPMG or Richards not exercising reasonable care and skill in carrying out the audit,” Trilogy alleges.
KPMG is yet to formulate a full response to the claim.
“Neither KPMG or Ms Richards have been served with a claim on this matter. Therefore we are not in a position to respond,” KPMG spokeswoman Kristin Silva said. “Until a claim is served there is no claim to defend against,” Ms Silva added.
When contacted by The Australian, Ms Richards declined to comment.
None of them — KPMG, Ms Richards or the former directors of City Pacific — is subject to an investigation by the Australian Securities & Investments Commission or has been accused of any wrongdoing by the regulator.
City Pacific First Mortgage Fund owned at one point $700m of mortgages on a host of commercial property and residential development projects.
The fund began to unravel in 2008 as the developers the mortgages were issued to failed to repay the loans.
The claim rests on allegations by Trilogy Funds Management that the wrong methodology was used to value the properties that underpinned the mortgages owned by the fund.
According to court documents, the properties underpinning the mortgage were valued on an “as if complete” basis — meaning the property was valued as though the developer had completed the development, including the valuations of the future buildings and structures that would be on the land.
“Loans supported by ‘as if complete’ valuations are investments a responsible entity would not make if they were exercising the degree of care and diligence that a reasonable person would exercise if they were in the responsible entity’s position,” the statement of claim said.