(Court clerk clarifies 3rd paragraph to make clear feeder funds invested a portion of their assets, not all of their assets)
* Lawsuit against KPMG by feeder fund investor dismissed
* Judge says audit firm lacked intent to deceive
By Emily Chasan
NEW YORK, March 31 (Reuters) - Accounting firm KPMG LLP [KPMG.UL] won dismissal on Wednesday of a lawsuit stemming from its audits of a "feeder fund" into confessed swindler Bernard Madoff's ponzi scheme.
In an opinion on Wednesday Judge Thomas Griesa, of the U.S. District Court in Manhattan, said the audit firm could not be sued in the case because it lacked actual intent to deceive, manipulate, or defraud the investors in the funds that brought the suit.
The suit was filed in April 2009 by the Meridian Horizon Fund and other affiliated hedge funds that invested a portion of their assets in two hedge funds run by Rye, New York-based hedge fund manager Tremont Partners, which was a "feeder fund" for Madoff.
The Meridian hedge funds claimed in their suit the Tremont funds received fees for investing enormous amounts of money with Madoff and that the Meridian funds had been assured Tremont closely monitored Madoff's transactions, internal controls and operational risk.
They claimed KPMG, which audited the Tremont funds in 2006 and 2007 issued false and misleading audit opinions and that, if they had looked into Madoff's auditor, they would have known that audits of Madoff's firm by Friehling & Horowitz were a sham.
Tremont invested more than half of its assets with Madoff's firm and lost more than $3 billion investing client money his ponzi scheme. Madoff is currently serving a 150-year prison sentence after pleading guilty to running the scheme last year. David Friehling, Madoff's accountant also pleaded guilty for his role in the scheme last year.
Griesa said in his opinion on Wednesday that to bring a suit against KPMG the Meridian funds would have to claim that firm's accounting practices were so deficient the audit could have amounted to "no audit at all."
"Merely alleging that the auditor had access to the information by which it could have discovered the fraud is not sufficient," Griesa wrote in his opinion.
The Judge did not rule out the potential for the Meridian funds to refile their complaint in the future. A lawyer for the group was not immediately available to comment on Wednesday.
The case is Meridian Horizon Fund LP, et al, v. Tremont Group Holdings Inc, et al, U.S. District Court, Southern District of New York, No. 09-03708. (Reporting by Emily Chasan; editing by Andre Grenon)
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