LOS ANGELES (CN) - The cash-strapped Los Angeles Coliseum sued SingerLewak accountants for $11 million, claiming the auditor should have found the fraud that led to criminal charges against coliseum managers.
Los Angeles Memorial Commission and Los Angeles Memorial Coliseum Association sued SingerLewak LLP in Superior Court, alleging negligence and breach of fiduciary duty.
In a 2011 lawsuit, the commission accused two of its former administrators of skimming hundreds of thousands of dollars of public money. In that lawsuit , the same two plaintiffs claimed the Coliseum's former general manager Pat Lynch and co-defendant Todd DeStefano diverted money from raves staged by co-defendants Insomnia Inc. and Go Ventures.
Six people were indicted last year in connection with the scandal, including Insomniac dance party producer Pasquale Rotella, former Coliseum technology manager Leopold Caudillo Jr., former stadium contractor Tony Estrada, Lynch and DeStefano, and Reza Gerami, of Go Ventures.
Now the commission claims that SingerLewak was "grossly negligent" in missing "material errors in their financial statements" from 2007 through 2011.
"SingerLewak's incompetent auditing and accounting services effectively protected the corrupt former employees and promoters," the complaint states.
SingerLewak missed or failed to identify a laundry list of fees paid to corrupt managers, including $1.89 million for raves, $125,000 for film productions, and $120,000 from vendors, according to the complaint.
Also never identified was $965,000 in cash payments to a stagehand union working at the Coliseum, the commission claims.
It claims that cash withdrawals paid to the union were beyond "ordinary and usual compensation practices."
"The practice exposed plaintiffs to liability in an amount in excess of fifty-eight percent (58 percent) more than the cash paid, as a result of the effect of all payroll taxes, and federal and state withholding taxes, not including interest, penalties, and the cost of reconstruction and filing of the plaintiffs' federal and state tax returns," according to the complaint.
The commission may also be liable to the union's pension fund after a shop steward allegedly pocketed cash he was required to contribute to trust funds, the complaint states.
"SingerLewak consistently rated control risk as low for the plaintiffs, despite the obvious deficiencies, although SingerLewak will argue today that the former management employees must have lied to the accounting firm, or that the commission should have discovered any corrupt activity affecting the operations or should not have trusted the former employees, the fact is that SingerLewak's failure to understand, appreciate or bring to the plaintiffs' attention the material issues involved in the internal control environment left the commission and association, and their governing bodies, vulnerable to fraud, theft, misuse of assets, diversion of revenue, and conflicts of interest," according to the 13-page complaint.
The commission says it would not have invested $6.7 million in a video scoreboard but for the accounting firm's negligence.
It wants that money back in damages, plus $2.2 million for money misappropriated by an unnamed employee, $1 million for unidentified cash payments, and $870,000 in deposits paid for soccer matches it says were never played.
It also seeks $4 million for prosecuting claims against corrupt managers, and to defend against potential claims by the stagehand union, nonparty International Alliance of Theatrical Stage Employees Local 33.
The plaintiffs are represented by Charles Slyngstad of Burke, Williams & Sorensen.
SingerLewak spokesman Roger Pondel wrote in an email that the firm had "properly utilized procedures recognized by the accounting standards and rules, including obtaining what we were led to believe were truthful and complete facts and representations from the Coliseum."
"Our audits were performed properly and with the highest level of professionalism in every respect. We will aggressively defend the allegations in this suit and are confident that the evidence will show the allegations to be false," Pondel wrote.