(CN) – The 6th Circuit upheld dismissal of a class action accusing Ernst & Young of securities fraud for approving reports that misstated Accredo’s true financial condition by millions of dollars.
Accredo relied on Ernst & Young’s audit when it acquired Gentiva Health Services in January 2002.
Gentiva turned out to be saddled with $58.5 million in uncollectable accounts receivable, which Accredo was eventually forced to write off because no one would buy them.
Accredo then fired Ernst & Young and sued it for accounting malpractice.
Investors also sued the accounting firm, alleging securities fraud.
A federal judge granted Ernst & Young’s motion to dismiss the securities fraud claim, saying the firm is not liable for statements it only approved, but did not make.
The Cincinnati-based appeals court affirmed.
“In the end, plaintiffs’ allegations do not raise a strong inference that Ernst & Young acted with scienter in affirming Accredo’s allegedly fraudulent accounting,” Judge John Gibson wrote for the three-judge panel.
“Conclusory allegations about what Ernst & Young must or should have known while auditing Accredo do not amount to specific allegations that show material misstatements or omissions committed with recklessness.”