Ernst & Young found liable for over $10 million in Madoff losses in Washington state

SEATTLE – A jury in King County Superior Court has found the firm of Ernst & Young negligent and liable for half of more than $20 million lost by a Washington state investment company in the wake of Bernie Madoff’s multi-decade investment scam.

Friday’s verdict pins responsibility on Ernst & Young for damages during the four years it audited funds managed by Tremont Partners, according to FutureSelect Portfolio Management attorney Steven Thomas. FutureSelect, of Redmond, and some related firms, lost a total of about $129 million in Tremont funds that sent money to Madoff.

“It’s very significant that they were found negligent,” Thomas said. “This jury has affirmed no, auditors are the gatekeepers.”

FutureSelect sued the auditing firm in 2010 for about $100 million of its losses. They alleged Ernst & Young would have uncovered the Madoff fraud if it had taken basic steps to verify his assets.

The amount awarded by the jury Friday covers money lost during the time Ernst & Young worked as an auditor for Tremont Partners. FutureSelect had accepted some responsibility for those losses leading to the jury’s decision to split the damages between the two. Thomas said his client could eventually receive over $20 million with prejudgment interest added to the award.

Ernst & Young spokeswoman Amy Call Well said Friday in an email the firm believes it was not responsible for any of the investors’ losses. Officials at the firm are reviewing whether to appeal.

“EY was not the auditor of any Madoff entity; we were among the many auditors of funds that chose to use Madoff as their investment advisor,” she said. “While we regret the investors’ losses, no audit of a Madoff-advised fund could have detected this Ponzi scheme.”

Madoff revealed his scheme in December 2008 amid a collapsing economy, admitting that account statements showing clients held nearly $68 billion were a sham. The roughly $17.5 billion in principal invested by retirees, charities and other clients over decades was mostly gone — paid out as fake profits or raided by Madoff’s family and cronies.

Madoff, now 77, is serving a 150-year prison sentence. A federal trustee based in New York has recovered or made agreements to recover about $11 billion of the lost principal.

Thomas said FutureSelect had invested on behalf of other funds, retirees, a New York church and others said. If the verdict holds, the money will go toward paying back those investors, he said.