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Willkie Farr & Gallagher LLP

Accounting Profession Defense

The defense of the accounting profession has been a mainstay of Willkie’s litigation practice for more than 40 years.  Owing in part to our long-standing representation of the AICPA, our role in the formulation of Generally Accepted Auditing Standards, our assistance to FASB and (more recently) the IASB, and our present representation of most of the largest accounting firms, we have worked hard to earn our recognition as "the best in the city for financial reporting issues" (Chambers USA).

It is through our representation of the accounting profession’s preeminent professional organizations that the firm has been able to establish the foundation and depth of its experience in financial reporting.  The firm’s assistance to the AICPA in the formulation of Generally Accepted Auditing Standards not only has provided in-depth knowledge of the intricacies of GAAS, but has enhanced the accounting profession’s ability to communicate effectively the inherent limitations of a financial statement audit.  Beyond GAAS, the firm’s involvement with the Financial Accounting Standards Advisory Council, which serves as the principal advisory council to FASB, has enabled the firm to provide input and guidance in FASB’s formulation of Generally Accepted Accounting Principles.  More recently, the firm is also providing guidance of a similar nature to the IASB in its formulation of International Financial Reporting Standards.  The firm has also been called upon to assist the accounting profession’s newly formed Center for Audit Quality in its mission to foster high-quality performance by public company auditors.

Beyond our work with these professional organizations, we have also been called upon to assist in the formulation of financial reporting legislation. Willkie played a key role in assisting the Senate Banking Committee in structuring hearings on a new financial reporting model for the 21st century.  The firm also testified before the Department of the Treasury’s Advisory Committee on the Audit Profession, before the New York Stock Exchange’s Blue Ribbon Committee on Improving the Effectiveness of Corporate Audit Committees, and before the Panel on Audit Effectiveness of the Public Oversight Board. We also assisted in drafting parts of the Private Securities Litigation Reform Act of 1995, including in particular Section 10A. Other legislation in which the firm has played an important role includes the Securities Litigation Uniform Standards Act and the Uniform Accountancy Act.

All of this contributes to a key strength of the firm’s professional defense practice – defending the accounting profession in litigation and regulatory investigations.  The firm has represented both U.S. and non-U.S. accounting firms and individual engagement personnel in national and international securities class actions as well as bankruptcy and state proceedings.  Among our more notable achievements, we obtained the landmark jury verdict for the defense in the first securities class action tried to a jury under the Private Securities Litigation Reform Act of 1995.

Beyond litigation defense, the firm has been active in SEC and, more recently, PCAOB regulatory proceedings. Headquartered in our Washington office, the firm’s Compliance, Investigations & Enforcement Group, which includes former senior staff of the SEC’s Enforcement Division, actively interacts with the SEC, the PCAOB, and other regulatory authorities in accounting investigations.  Our governmental capabilities also encompass significant experience in non-civil proceedings, as our group includes former Assistant U.S. Attorneys who have extensive background in the full spectrum of accounting issues.  With the help of the firm’s international network of offices, we are experienced in handling accounting profession issues around the world.

The firm has also been asked to take a primary role in developing the profession’s approach to potentially fraudulent financial reporting governed by Reform Act Section 10A.  At the suggestion of accounting profession leadership, Willkie has formulated and published basic parameters for audit committee oversight of independent investigations that are intended to serve as the predicate for an audit report on restated financial statements.  The firm has sought to provide broader guidance to audit committees, boards of directors, corporate counsel, governmental authorities, and others through publication of the leading text on fraudulent financial reporting, Accounting Irregularities and Financial Fraud.  Other Willkie publications include The Financial Reporting Handbook, Eighteen Safeguards To Corporate Self-Investigation, and numerous articles and essays.

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Specific examples of the firm’s accounting profession litigation defense work include:

  • Kirschner v. KPMG LLP and Teachers’ Retirement System of Louisiana v. PricewaterhouseCoopers LLP (N.Y. Ct. of Appeals) – Representing AICPA and the NYSSCPA as amicus curiae before the New York Court of Appeals in obtaining clarification of the scope of the imputation doctrine, the in pari delicto defense, and the "adverse interest" exception in the context of suits by companies against their auditors for failing to prevent management fraud.
  • In re Ambac Financial Group, Inc. Securities Litigation (S.D.N.Y.) – Representing defendant accounting firm in securities class action arising out of writedowns related to mortgage-backed securities and collateralized debt obligations.
  • Just For Feet Securities and Trustee Litigations (N.D. Ala. and Ala. State Court) – Representing defendant accounting firm in securities class actions, professional malpractice cases, and SEC proceedings arising out of alleged discovery of accounting improprieties at Just For Feet.
  • Tax Shelter Litigations – Representing two major accounting firms in litigation around the country arising out of alleged sale of tax shelters.
  • Sharp International Corp. v. KPMG LLP (N.Y. Sup. Ct. and Bankr. E.D.N.Y.) – Representing defendant accounting firm in professional malpractice cases brought by bankruptcy trustee and lenders of defunct watch company.
  • In re Health Management, Inc. Securities Litigation (E.D.N.Y.) – Representing defendant accounting firm in four-week jury trial of securities class action arising out of discovery of accounting irregularities at Health Management, Inc.
  • In re Elan Corporation Securities Litigation (S.D.N.Y.) – Representing non-U.S. accounting firm in international securities class action arising out of alleged accounting improprieties at Elan Corporation.
  • In re Oxford Health Plans, Inc. Securities Litigation (S.D.N.Y.) – Representing defendant accounting firm in securities class action arising out of alleged accounting improprieties at Oxford Health Plans, Inc.
  • Securities Investor Protection Corp. v. BDO Seidman, LLP (S.D.N.Y.) – Representing defendant accounting firm in financial reporting litigation arising out of accounting issues and reported misconduct at A.R. Baron & Co., Inc.
  • Effron v. KPMG Peat Marwick (N.Y. Sup. Ct.) – Representing defendant accounting firm in four-week jury trial arising out of action to recover damages allegedly caused by improper audit of financial statements.
  • Grabow v. PricewaterhouseCoopers LLP (Okla. State Ct.) – Representing auditor of family of mutual funds in state court class action alleging professional malpractice arising out of findings of SEC and New York Attorney General market timing investigations.
  • In re Edison Schools, Inc., Securities Litigation (S.D.N.Y.) – Representing defendant accounting firm in securities class action and SEC proceedings arising out of alleged improper accounting at Edison Schools, Inc.
  • Footstar Securities, Derivative, and Trustee Litigations (S.D.N.Y.) – Representing defendant accounting firm in securities class actions, shareholder derivative litigation, and bankruptcy litigation arising out of accounting issues at Footstar.
  • FDIC v. Main Hurdman (E.D. Cal.) – Representing defendant accounting firm in ten-month jury trial prosecuted by FDIC arising out of failure of Continental Illinois National Bank and Trust Company.
  • In re Colonial Realty Co. (Super. Ct. Conn.) – Representing AICPA in securities class actions arising out of accounting irregularities at network of real estate development companies.
  • United States v. O’Hagan (U.S.) – Representing AICPA as amicus curiae before the United States Supreme Court in case involving misappropriation of inside information.
  • Kemin Industries, Inc. v. KPMG Peat Marwick (Iowa Sup. Ct.) – Representing AICPA as amicus curiae before Iowa Supreme Court in appeal seeking to overturn jury verdict against accounting firm.
  • Colorado State Board of Accountancy v. Zaveral Boosalis Raisch (Colo. Sup. Ct.) – Representing AICPA as amicus curiae before Colorado Supreme Court in appeal arising out of state board of accountancy proceeding against accounting firm.
  • Mendelsohn v. KPMG LLP (Bankr. E.D.N.Y.) – Representing defendant accounting firm in professional malpractice action brought by bankruptcy trustee arising out of alleged accounting improprieties at developer and distributor of video game software.
  • Arthur Andersen LLP v. United States (U.S.) – Representing AICPA as amicus curiae before the United States Supreme Court in case interpreting federal obstruction of justice statute.
  • Acclaim Securities and Trustee Litigation (D.N.J.) – Representing defendant accounting firm in federal securities class action and trustee’s claim in bankruptcy.
  • In re WRT Energy Securities Litigation (S.D.N.Y.) – Representing accounting firm to establish precedent governing confidentiality protections applicable to accounting firms producing audit work papers as nonparties to litigation.
  • Robbins v. Koger Properties, Inc. (11th Cir.) – Representing AICPA as amicus curiae before Eleventh Circuit in appeal seeking to overturn jury verdict in securities class action against accounting firm.
  • United States v. Tenzer (2d Cir.) – Representing AICPA as amicus curiae before Second Circuit in appeal arising out of Internal Revenue Service action against practicing CPA.
  • Central Bank of Denver v. First Interstate Bank of Denver (U.S.) – Representing AICPA as amicus curiae before the United States Supreme Court in case involving aiding and abetting liability under Section 10(b) of the Securities Exchange Act of 1934.
  • Ibanez v. Florida Department of Business and Professional Regulation, Board of Accountancy (U.S.) – Representing AICPA as amicus curiae before United States Supreme Court in First Amendment challenge to state accountancy regulations.
  • Scioto Memorial Hospital Ass’n v. Price Waterhouse & Co. (Ohio Sup. Ct.) – Representing AICPA as amicus curiae before Ohio Supreme Court in appeal seeking to overturn jury verdict against accounting firm.
  • RTC v. Castellett (D.N.J.) – Representing defendant accounting firm in action prosecuted by RTC arising out of failed savings and loan association.
  • Holmes v. Securities Investor Protection Corporation (U.S.) – Representing AICPA as amicus curiae before the United States Supreme Court in case contesting the existence of a private right of action under RICO based on a claim of fraud in the sale of securities.
  • Gee v. Seidman & Seidman (Fla. Sup. Ct.) – Representing AICPA as amicus curiae before Florida Supreme Court in appeal seeking reinstatement of jury verdict in action against accounting firm.
  • Basic Inc. v. Levinson (U.S.) – Representing AICPA as amicus curiae before the United States Supreme Court in case addressing viability of "fraud on the market" theory under Section 10(b) of the Securities Exchange Act of 1934.
  • United States v. Arthur Young & Company (U.S.) – Representing AICPA as amicus curiae before the United States Supreme Court in case concerning the discoverability of confidential tax papers prepared by independent certified public accountant.
  • Holt Leasing Co. v. Main Hurdman (Cal. Super. Ct.) – Representing defendant accounting firm in action to recover damages allegedly caused by improper advice as to financial restructuring.
  • Ernst & Ernst v. Hochfelder (U.S.) – Representing AICPA as amicus curiae before the United States Supreme Court in case concerning private cause of action for damages under Section 10(b) of the Securities Exchange Act of 1934.
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