KPMG Peat Marwick has agreed to settle a class action by the investors in
Piper Funds Institutional Government Income Portfolio for $13.9 million, paid out to 8,000 investors who lost money in the
Piper Jaffray fund in 1994.
The accounting industry has traditionally denied taking any responsibility for the mutual funds it audits and this is the first time an auditor has agreed to pay money directly to investors. KPMG was not accused of auditing errors but failing to warn investors that the fund company had violated investments restrictions causing the fund to be more risky than advertised.
This is the first time an accounting firm has taken responsibility for investors' losses, but the precedent that KPMG sets may create more lawsuits in the future, according to industry insiders.
"I think that the next time we see a market downturn, more cases like this will be brought up," said
John Baker of
Stradley, Ronon, Stevens & Young, a Washington- based law firm. "The more immediate import is that KPMG was interested enough to pay almost $14 million to make it go away -- it is both surprising and striking."
The KPMG case was in litigation for more than five years. The settlement was first reached right before the trial was to begin, in January, but was kept private until now. The accounting firm decided it was less expensive to settle than to continue fighting the case, settlement documents said.
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