EY continued to audit NMC Health Plc despite suspicions that management withheld key documents that revealed its true debt position, lawyers for the collapsed firm argued at the start of a £2 billion ($2.7 billion) London trial.
NMC’s administrator, Alvarez & Marsal, sued EY in London alleging negligence and failure to spot the billions of hidden debt between 2012 and 2018 when EY was the auditor. NMC was put into administration in 2020 following allegations of fraud at the health care provider.
“It is remarkable that, despite its suspicions that management was lying about being unable to provide access to the group’s general ledger, EY continued to conduct the audits,” lawyers for NMC said on the first day of the London trial.
EY denies the allegations and said the claims were “unfounded.” “Even a bloodhound was likely to be deceived in this case, let alone a competent watchdog,” lawyers for the audit firm said in court filings.
The collapse of NMC sparked a flurry of lawsuits and investigations in the U.K. and U.S. as different sides point the finger of blame. The U.K.’s markets watchdog previously
NMC’s case is “enormously inflated” and the “true losses, if any, are far less than its headline claim,” lawyers for EY said in court filings. “NMC’s pleaded case depends on both an exaggerated conception of the scope of EY’s duty and an unrealistic premise as to how auditors faced with challenging client circumstances should behave.”
The health care company was put into administration in 2020 by a London court as the scale of the firm’s troubles emerged following a short seller’s report.
“This was a complex, pervasive and collusive fraud, and responsibility for it lies squarely with its perpetrators, including NMC’s owners, directors and the treasury and finance team,” EY’s spokesperson said in a statement.
The firm’s founder Bavaguthu Raghuram Shetty, who is not a party to the case, has previously denied any wrongdoing saying he was a victim of the fraud. Shetty, who was sued separately by NMC, blamed former senior executives and EY for the alleged fraud. Shetty’s lawyers didn’t immediately comment on the trial.
EY agreed to remove auditors who sought more information from NMC, replacing them with people “hand-picked” by the collapsed hospital operators’ top shareholders, lawyers for NMC alleged.
The auditor was the victim of “active concealment” of the fraud and it had risen to the challenges posed by “bombastic style” of functioning by the majority shareholders’ representative on the firm’s board, according to EY’s lawyers.
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