On December 7, 2011, Mark Calvert, the court-appointed trustee, who is overseeing the liquidation of the Meridian Mortgage funds, filed a lawsuit against Moss Adams, LLP in a Washington state court. The suit alleges that the auditing firm is guilty of professional malpractice, negligent supervision, fraud and violations of Washington’s Consumer Protection Act and seeks damages in the amount of $150 million.
The lawsuit accuses Moss Adams, the 11th largest CPA firm in the U.S., of failing to detect the largest Ponzi scheme in the history of the Pacific Northwest. Calvert also names Frederick Darren Berg as a co-defendant, alleging that he was the mastermind behind the scheme. In the summer of 2010, Berg plead guilty to fraud and to diverting approximately $100 million to personal use. However, while the suit accuses Berg of being the mastermind, the suit also accuses Moss Adams of covering up the scheme by issuing clean opinion letters following six audits of the Meridian funds between 2001 and 2007.
The Meridian funds were created in 2001. It represented to potential investors that it invested in seller-financed real estate contracts and hard money loans. Meridian funds sent its investors annual interest payments from the cash flow, which Meridian claimed it generated from these activities. In the end, approximately 750 entities invested $150 million in Meridian.
Over the course of this scheme, from 2001 to 2007, Moss Adams served as Meridian’s independent auditor. Under this position, Berg charged Moss Adams with the responsibility of convincing investors of Meridian’s legitimacy and performing other functions for Berg, including his personal income taxes. Accordingly, Moss Adams issued clean audit/opinion report during audits performed from 2001 to 2007, which were later used to prove the operation’s legitimacy to its investors.
According to the complaint, Moss Adams turned a blind eye to numerous “red flags” associated with Berg’s scheme, allowing Berg to personally benefit by tens of millions of dollars.
For more on this suit, see “CPA Firm Faces $150 Million Lawsuit for Role in Seattle Ponzi Scheme.”