Ernst and Young Bermuda Sued - Fund Invests in Alleged Ponzi Scheme

MARCH 16, 2009

A class action complaint has been filed against Ernst & Young (Bermuda) and others in the United States on behalf of investors in a hedge fund for which it was auditor.

The action was filed at the US District Court for the District of Connecticut on Monday this week by Susan Quinn, who claims to have invested approximately $1.8 million in the Stewardship Credit Arbitrage Fund LLC.

More than half the assets of the funds were invested with Thomas J. Petters and Petters Worldwide, previously #154 on the Forbes largest private company list, which were found by US federal agents to be running an alleged $3 billion Ponzi scheme, based on fictitious sales of flat-screen televisions and other electronic goods.

The complaint alleges that E&Y failed to detect that 60 percent of the assets reflect in the Fund's financial statements, "were a complete and total sham," as reported by KYC News' Offshore Alter online newsletter.

The defendants in the case are Ernst & Young LLP, a Delaware partnership based in New York, NY; Ernst & Young Ltd. in Bermuda; Stewardship Credit Arbitrage Fund LLC, Stewardship Investment Advisors LLC, and Acorn Capital Group LLC (whose website is under construction); and Marlon Quan, and investment manager believed to reside in Connecticut and the found and principal officer of both SIA and Acorn. Acorn had previously sued two brothers for allegedly defrauding them out of more than $2 million. The causes of action against all defendants are breach of fiduciary duty and negligence.

Gottex, the US$16 billion Swiss fund of hedge funds manager, had previously filed suit against Stewardship and Mr. Quan alleging that it broke promises and misled it over redemption requests. According to the complaint, filed in Connecticut federal court, Stewardship agreed to let Gottex withdraw its $100 million investment but paid out the redemption in participatory notes. The complaint also accuses Stewardship and Quan of misleading it about lowered management fees after it threatened to withdraw its money two years ago.

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