SW Legal studies in Business

Accountants Liable for Investment Losses Caused by Treasurer's Bad Behavior
Description Appeals court upheld a verdict against an accounting firm finding it liable for most of the losses caused by the treasurer of a college who engaged in bad investment practices. There was professional negligence and breach of contract for failure to notify the board of problems that should have been uncovered.
Topic Consumer Protection
Key Words Professional Negligence
C A S E   S U M M A R Y
Facts Coopers & Lybrand audited the books, including the investments, of City Colleges. Five months after an audit, which revealed no problems, the board of trustees determined that there was a financial emergency due to the investment practices of the college's treasurer which were in violation of college rules. After the investment fiasco was ended, the college sued Coopers for professional negligence and for breach of contract-for failure to detect and notify the board of illegal, inappropriate, and highly risky investments. The jury awarded the college $23 million, reduced by 45 percent for the college's comparative negligence, and added $378,000 for breach of contract. Coopers appealed.

Affirmed. The evidence supported the finding that the college's losses were a foreseeable result of the auditors' failure to alert the board to the investments. The testimony provided about the extent of the loss was not too speculative. Members of the board testified about the steps that would have been taken to correct the problem had the auditors uncovered them and presented them to the board.

Citation Board of Trustees of Community College Dist. No. 508 v. Coopers & Lybrand, --- N.E. --- (2002 WL 1751311, App. Ct., Ill., 2002)

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