Australian fund manager Ausbil, which recently burned $18 million compensating investors in one of its funds, has accused its auditors PwC, PwC managing partner Peter van Dongen and Deloitte of misleading and deceptive conduct over a series of audits it alleges were botched.
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Ausbil, which has more than $10 billion in funds under management, recently admitted it overcharged investors in its Australian Emerging Leaders Fund by $18 million between December 2004 and January 2014.
The fund manager is now suing both auditing firms and Mr van Dongen in the Federal Court for misleading and deceptive conduct and failing to exercise due care and diligence when conducting audits of the scheme, testing the scheme's adherence to its compliance plan and during audits of Ausbil itself.
It alleges that as a result of these breaches, Ausbil "unlawfully charged" its clients.
A spokeswoman for PwC said it was unable to comment on client matters. "PwC and Peter van Dongen will vigorously defend the claim," the spokeswoman said. A Deloitte spokesman said: "We don't comment on legal matters other than to say we will vigorously defend any allegations made against Deloitte."
Ausbil is seeking unspecified damages and costs. A spokesman for Ausbil declined to comment.
The legal battle pitches the reputation of one of PwC's most senior partners in Australia against the investment house founded by top fund manager Paul Xiradis.
Mr van Dongen, now national managing partner of PwC's core assurance department, was up until 2012 head of PwC Australia's financial services practice.
He audited the Australian Emerging Leaders Fund's adherence to its own compliance plan between 2005 and 2009, when PwC took over until July 2013. PwC was also auditor of the scheme between 2004 and 2013 and of Ausbil itself between June 2004 and August 2008, when Deloitte took over the company audits.
According to Ausbil, each of the financial reports for the scheme for the years ending June 2005 to June 2013 "failed to give a true and fair view of the financial position and performance of the scheme".
Ausbil alleges that, at varying times between 2005 and 2013, the financial reports "materially overstated" the value of the true total of the aggregate fee expense incurred by the scheme, the true total of the scheme's net assets and the true total of the annual profit before tax. It has also alleged the scheme's accounts payable, total liabilities and other assets were "materially understated" in reports issued between 2005 and 2013.
Ausbil alleges PwC, Mr van Dongen and Deloitte all failed in their duties to Ausbil, failed to exercise due care and in the audits made misleading and deceptive representations.
It also alleges PwC, Deloitte and Mr van Dongen did not do "sufficient audit work" and made representations when conducting the audits of the fund's adherence to its compliance plan between 2004 and 2008 that were not true.
"There were no reasonable grounds for the opinion expressed by Mr van Dongen," Ausbil's statement of claim says.
Ausbil has levelled the same allegations against PwC and Deloitte for the audits conducted by those firms.
"Ausbil was unable reasonably to protect itself from the consequences of PwC not exercising reasonable care and skill," Ausbil has alleged.
Ausbil ran into trouble with its fund after it discovered the fees it was charging investors as per the fund's product disclosure statement were inconsistent with the fees permitted under the fund's constitution.
According to a media release from the Australian Securities and Investment Commission issued in August, Ausbil "notified ASIC as soon as it was aware of the breach".
"Following those discussions, [Ausbil] advised investors it would undertake remedial action. ASIC has been working with Ausbil to resolve this matter in the interest of investors," according to the ASIC statement.
Ausbil has brought in KPMG as an independent adviser to review its compensation program for investors.
