LAS VEGAS (CN) – Deloitte & Touche helped USA Capital’s principals carry out a “massive fraud” that forced the lending company into bankruptcy in 2006, leaving $960 million in unpaid loans, the liquidator claims in Federal Court.
The USACM Liquidating Trust claims that Deloitte & Touche failed to disclose multiple instances of improper accounting and financial wrongdoing, including that the company was violating state law by making interest and principal payments on defaulting borrowers’ behalf.
Deloitte & Touche issued annual audit opinions stating that all was well, then quietly withdrew from its association with the company, according to the 97-page complaint.
USA Capital’s principals, Thomas Hantges and John Milanowski, and its loan service manager Victoria Loob, are accused of misallocating and commingling funds of the USA Capital Group of companies to ensure that direct lenders got regular interest and principal payments, even for nonperforming or uncollectible loans.
Doing so enabled them to lull lenders into a false sense of security and publicize the fact that no direct lender had ever lost money on a loan serviced by USA Capital, suggesting that the company had never defaulted on its loans, according to the complaint.
“Deloitte’s myriad of failures to report the fraud that it had detected and its continued certification of financial statements that were wholly inaccurate permitted the fraud to continue for many years,” the complaint states.
From 1997 to 2006, the company originated and serviced more than $2.6 billion in loans to real estate developers. When it filed for bankruptcy in April 2006, $960 million in loans remained outstanding, according to media reports.
The lawsuit, filed by Allan Diamond with Diamond McCarthy of Houston, demands treble damages and punitive damages from Deloitte & Touche, for conversion and aiding and abetting.