British Virgin Islands fund, F Ltd., was part of group (F Group) which provided funds on behalf of itself and S Ltd. and L Ltd. to B’s security brokerage, B LLC, for investment. In December 2008, B was arrested for operating Ponzi scheme and trustee and liquidator was appointed under US Securities Investor Protection Act (SIPA) to collect and set aside fund of BLMIS customer property for distribution among BLMIS customers. SIPA trustee sought return of 3.5 billion from F Group. F Ltd. filed claims in SIPA proceeding. In 2011, liquidator appointed for F Ltd., K, agreed to pay SIPA trustee $70 million, parties consented to judgments in favour of SIPA trustee against each F Group fund, and F Ltd. was granted $230 million claim in SIPA proceeding. F Group brought action in breach of contract and negligence against auditor of its 2006 and 2007 financial statements for failing to discover and disclose Ponzi scheme, claiming US $2.577 billion difference between actual and estimated liquidation deficits had auditors discovered scheme earlier. Auditor admitted negligence. Auditor brought motion for summary judgment. Motion granted; action dismissed. Liquidators failed to establish damages so there was no genuine issue requiring trial. Evidence of auditor’s witness that F Group were better off by some $857,500,000 was accepted. Liabilities of F Group or their liquidators to SIPA trustee or customers of B LLC were incorrectly included in calculations. Net liability figure $2,329,525,000 used in calculation was invalid. Investments S Ltd. and L Ltd. made in B LLC were double-counted. Phantom earnings were included in calculations based on fictitious entries on B LLC statements. Hypothetical, statute-barred claims of B LLC investors against F Fund were included in calculations. Liquidators gave no details as to claims they rejected or included in damage calculation and no details of separate proceedings in BVI in which F Group were allegedly liable to investors.
Fairfield Sentry Limited et al v. PwC et al (2017), 2017 CarswellOnt 8995, 2017 ONSC 3447, Newbould J. (Ont. S.C.J. [Commercial List]).