A Maxam Capital Management LLC fund that placed all of its $280 million in holdings with alleged Ponzi-scheme mastermind Bernard Madoff sued its own auditors for not detecting the fraud at the New York investment firm, Bloomberg reported, Bloomberg reported.
The Maxam Absolute Return Fund LP sued McGladrey & Pullen LLP and Goldstein Golub Kessler LLP for professional negligence on Jan. 30 in state court in Bridgeport, Connecticut.
While the auditors issued opinions that Maxam's financial statements conformed with general accounting principles, they "negligently relied solely on documents created by Madoff and sought no independent confirmation that trades had been executed or that assets existed," according to the complaint. "Assets were grossly overstated based on fraudulent trading tickets and fraudulent account statements provided by" Madoff.
Madoff, 70, was arrested Dec. 11, and charged with one count of securities fraud for allegedly using billions of dollars from new investors to pay off older ones. He told authorities that investors may have lost $50 billion, U.S. prosecutors said. He hasn't formally responded to the charge.
Goldstein Golub, based in New York, did the Maxam fund's 2006 audit, according to the complaint. McGladrey & Pullen, based in Bloomington, Minnesota, did its 2007 audit after Goldstein Golub partners joined that firm.
McGladrey & Pullen General Counsel Richard Miller didn't immediately return a call for comment. Two phone numbers for Goldstein Golub in New York ring through to RSM McGladrey Inc., a professional-services firm that "operates in an alternative practice structure with McGladrey & Pullen," according to its Web site. Goldstein Golub no longer conducts audits, according to the complaint.