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ARTICLE ID 44122

- $________ ON COUNTERCLAIM Accounting malpractice - Alleged negligence in failing to complete required SEC audit - Counterclaim for unpaid accounting fees.

U.S. District Court, Southern District of Florida

The plaintiff, a finance company, brought this action against the defendant CPA firm alleging accounting malpractice. Specifically, the plaintiff claimed the defendant disengaged from an SEC audit, which caused over $6 million in lost profits and other damages to the plaintiff. The defendant maintained that it complied with all professional auditing standards. The defendant counterclaimed for fees allegedly due and owing by the plaintiff for accounting services provided.

The plaintiff, a publicly traded company, alleged that the defendant began an SEC-required audit of the plaintiff’s books and records and then wrongfully refused to complete the audit. The plaintiff claimed that the defendant’s failure to complete the audit resulted in a loss of profits and other damages of approximately $6 million.

The defendant argued that the independence of its auditor was compromised by the plaintiff’s adversarial position in connection with an unusual reverse stock split transaction. The defendant contended that the transaction discriminated against the plaintiff’s public shareholders in favor of the plaintiff’s Chief Executive Officer and the entities he controlled.

The defendant claimed that it required the plaintiff to obtain a legal opinion from an independent SEC counsel confirming that the plaintiff’s reverse stock split, in combination with warrant agreements previously issued to the plaintiff’s CEO, was completed in accordance with law. The defendant argued that the plaintiff did not provide the legal opinion requested and it therefore properly disengaged the audit.

The case was tried as a bench trial. After a 2.5-week trial, the court found for the defendant on the plaintiff’s professional malpractice claim. The jury awarded the defendant CPA firm $________ on its counterclaim. The defendant CPA firm has filed for taxable costs. The plaintiff has filed an appeal.

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