Anwar et al v. Fairfield Greenwich Limited et al

Filing 1564

ENDORSED LETTER addressed to Clerk of the Court from Alexander B. Richardson re: I oppose the level of settlement being proposed and note that this level of settlement has not been discussed with me previously and had it been done so I would have opposed it at that time for much the same reasons. ENDORSEMENT: The Clerk of Court is directed to enter into the public record of this action the letter above submitted to the Court by Alexander B. Richardson. (Signed by Judge Victor Marrero on 4/11/2016) (lmb)

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Dear Sirs

Re. Settlement in Anwar et al v. Fairfield Greenwich Limited et al., case No .08-cv-118
I refer to the proposed settlement by the PWC Defendants in the above action. I write to advise you that
I object to the proposed settlement for the following reasons.
•

The PWC Defendants were the auditors of the Fairfield Sentry fund and to the best of my
knowledge issued "unqualified" audit reports in each of the years in which , between them, they
audited the funds.

•

In those audit reports the PWC Defendants (or some of them) stated, for example for the
financial year ended 31 December 2007, that "In our opinion. The accompanying balance sheet

and the related income statement ..... present fairly, in all material respects, the financial
position of Fairfield Sentry Limited (the «company") as of December 31 2007'. In making that
statement the PWC Defendants will have conducted an audit and carried out extensive tests of
transactions, assets and liabilities to verify the accuracy of the Fairfield Sentry Profit and Loss
and Balance Sheet statements and as they reported in their Audit Report dated 7 April 2008

"We believe that our audit provides a reasonable basis for our opinion".

•

Those audited balance sheets showed total net assets and hence a book value of the Fairfield
Sentry Fund at 31 December 2007 of approximately $7 .147 Billion. Furthermore the same
audited accounts for 31December2007 showed that $6.953 Billion (or ninety six percent) of the
$7.277 Billion of total assets at that date comprised US Treasury Bills maturing within six
months of the balance sheet date. US Treasury Bills are of course a short term claim on the
Government of the United States and are perceived as one of the safest and most liquid of all
investments and as a result are usually treated as "Cash" in most audited financial statements.

•

When the fund collapsed less than a year later it has, I understand, been found that these
Treasury Bills did not exist nor indeed had they existed in anything like the quantity expressed in
the previous several years' financial statements and far from the accounts being a true and fair

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picture of the assets and liabilities and profit and loss of the fund, the accounts were a
completely fraudulent representation of the assets of the fund which instead of the $ 7 .147
Billion of net assets it was supposed to hold on behalf of the investors held negligible or very
small amounts of any true assets.

•

The PWC Defendants (or some of them) had a duty to verify the significant assets of the fund
and to satisfy themselves that the assets a) existed and b) had a value at least equal to that
stated in the audited financial statements. It is now clear that the fund did not own the Treasury
Bills (or the vast bulk) of them as described in the audited financial statements.

•

The PWC Defendants will or should have carried out extensive tests to verify the existence of
the Treasury Bills and from the extraordinary losses suffered by the investors in the Fund it is
now evident as described above that the Fund did not own the vast bulk of the Treasury Bills as
described in the audited financial statements. To verify the existence and value ofTreasury Bills
is not a complex matter it is one of the simplest assets to audit as it effectively involves counting
cash and ensuring it is genuine and equal to the amount stated in the financial statements. This
is a simple counting of cash and not some complex valuation of illiquid derivatives or similar. To
have failed to verify the existence and value of this most basic of assets implies a failure to apply
the simplest of audit practices and processes.

•

The PWC Defendants are not some firm of sole practitioners but one of the four largest audit
firms in the world. They presumably applied the same audit practices and procedures as they do
worldwide and were paid a handsome fee for their audit services. The investors relied on the
audit report, which formed an integral part of the Fairfield Sentry audited financial statements,
when deciding whether to invest in the fund or to remain invested in the fund.

•

It appears clear to me that the PWC Defendants in failing to verify the existence and value of the
assets of the fund failed in their most basic duty of care to the investors in the Fairfield Sentry
fund.

•

The proposed settlement offer of $55 million by the PWC Defendants represents a wholly
unrepresentative compensation to the investors for what I consider to be negligence or gross
negligence on the part of the auditors. It represents less than one percent of the $7.147 Billion
of net assets which they audited at 31 December 2007 and on which they issued a clean audit
report at 7 April 2008.

•

This settlement offer will be further greatly reduced by the amount of the claimants' attorney
fees and expenses. The amount of these deductions have unfortunately not been made known
to me but this already paltry settlement sum will undoubtedly be very significantly reduced by
the lawyers' fees and expenses.

•

It has I understand been suggested that claiming a larger sum in settlement from the PWC
Defendants would mean the defendants might go into bankruptcy and any amount awarded to
the claimants by the Court might be difficult to recover. I oppose this argument. If an adverse
finding was made against the PWC Defendants at trial as I think it would be for the reasons

•

given above amongst other reasons, then it is far better for the investors (and indeed for
investors in other audited entities) that the defendants are held accountable for their alleged
negligent or gross negligent actions. If this means the defendants go bankrupt and the PWC
brand worldwide suffers the negative publicity associated with such an action so be it. In my
opinion it is far better that such a result occur and future investors gain some degree of
improved protection in future than to accept such a paltry offer as is currently being made to
investors.
Because of the paltry level of this settlement, in reality the only parties to gain anything material
from this settlement will be the PWC Defendants and the lawyers of the respective parties.

For the above reasons I oppose the level of settlement being proposed and note that this level of
settlement has not been discussed with me previously and had it been done so I would have opposed it
at that time for much the same reasons.
Yours faithfully

Alexander B. Richardson (Investor Claim No. 340)

P.S. A copy of this letter of objection has been sent to the Plaintiffs' Counsel Designee and the PWC
Defendants' Counsel Designee as requested.