(CN) – A New Jersey jury awarded a record $31.8 million to pottery maker Cast Art Industries in its accounting fraud claim against accounting firm KPMG. Cast Art proved to the jury that KPMG failed to detect massive financial fraud at Papel Giftware, which Cast Art acquired in December 2000.
During trial, pottery maker Cast Art introduced evidence showing that KPGM officers deliberately covered up Papel’s fraud in order to keep Papel as a client.
“Auditors have a duty to the public and investors to be diligent in report fraud,” said Cast Art’s attorney, Michael Avenatti with Eagan, O’Malley and Avenatti in Newport Beach. “They are not supposed to turn a blind eye to fraud in order to improve their profit margins. In this case, they did. The jury has sent a clear message to auditing firms nationwide that if you look the other way, you will be held accountable.”
Papel’s management booked tens of thousands of fraudulent transactions by, among other things, shipping products to phony customers, and double- and triple-shipping the same product to customers. Despite this, KPMG told Cast Art and others that Papel’s financial statements were accurate.
KPMG was represented by Joe Baio with Willkie Farr in New York.
The award is expected to top $41 million when interest is included.