mfs investment auditors kpmg sued for $1bn

Andrew Main, Business editor | April 18, 2009
Article from: The Australian
A SYDNEY law firm yesterday filed an action seeking $1 billion from auditor KPMG and the old MFS Investment Management, on behalf of about 10,000 unitholders.

MFS Investment Management, now Wellington Investment Management Ltd, was part of the Gold Coast-based MFS group, which went into administration in October. The group was chaired by former federal opposition leader Andrew Peacock, who is not an individual target of the action.

The head stock and parent company MFS Ltd, now known as Octaviar Ltd, is also a respondent to the action, which is clearly aimed at the players with the deepest pockets in the wash-up of the group.

The claim was filed in the Federal Court by Carneys Lawyers, led by solicitor Arthur Carney.

The class in the action represents people who bought into the MFS Premium Income Fund from January 2007 until the group collapsed "and who suffered loss or damage by reason of the conduct of the respondents".

Mr Carney said the group action remained open to further claimants in that category.

Two of the respondents, Andrew Waters and Michael Andrew, are partners at KPMG and 10 of the 15 are former directors of MFS Investment Management. They are MFS founder Michael King, Guy Hutchings, John Whateley, Jack Diamond, Craig White, Deborah Beale, Steven Kyling, Stuart Price, Michael Hiscock and Paul Manka.

The main thrust of the action is that MFSIM made unsecured loans to related companies in the MFS group between 2005 and 2007. The bulk of the loans are apparently not being repaid and will not be repaid.

KPMG is named because of its alleged engagement from 2003 to audit the fund's compliance plan, to which the suit alleges MFSIM failed to adhere for four years from 2005 onwards.

In each case, the suit alleges, loans should not have been advanced without certain approvals required by the plan.

Those loans should not have been approved "because they were not on commercial terms satisfactory to the fund, did not comply with the fund's investment guidelines and the fund was not adequately protected in the case of a default", the suit alleges.

The respondents have not yet had time to answer the allegations, which are due for their first directions hearing on May 22 in the Federal Court in Sydney.