(CN) - Investors who lost money when American Remanufacturers Holdings (ARI) went under can't collect damages from the company's accountants, a New York appellate division ruled.
DDJ Management and other investors loaned $40 million to ARI, partially based on a 2004 financial statement that seemed to indicate that the company's financial fortunes were improving.
However, the company went bankrupt, as the improved financial picture was a bookkeeping improvement rather than a genuine reflection of ARI's cash position.
The investors sued PriceWaterhouseCoopers, ARI's accountants, as a result of its 2003 audit of the company's finances, which did not foretell the company's collapse.
The appellate judges agreed with the motion court that PWC was not guilty of accounting malpractice.
"Mere allegations that PWC was no longer independent, or that the audit was not conducted in accordance with generally accepted accounting standards are insufficient to state a cause of action," the judges wrote, "The alleged misrepresentations ... must have been a proximate cause of plaintiffs' loss."
In fact, the judges placed the blame on the plaintiffs for failing to conduct due diligence.
"Plaintiffs never looked at ARI's books and records," they wrote. "Having failed to make any such effort to evaluate the risk for themselves, they cannot now properly allege reasonable reliance on the purported misrepresentations."
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