* Suit against KPMG by feeder fund investor is dismissed
* Judge says audit firm lacked intent to deceive
By Emily Chasan
NEW YORK, March 31 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, was filed in April 2009 by the Meridian Horizon
Fund and other affiliated hedge funds that invested all of
their assets in two hedge funds run by Rye, New York-based
hedge fund manager Tremont Partners, which was a "feeder fund"
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
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.
Judge 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," Judge 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)