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Geneva sues Ernst & Young for SFr3 billion

A report says the accountants used a method “outside legal norms” Keystone Archive

Canton Geneva is suing the accounting firm Ernst & Young for SFr3 billion ($2.2 billion) in damages over the way it audited Geneva Cantonal Bank.

The canton is the majority shareholder in the bank, and was forced to bolster its reserves by SFr2.7 billion in 2000 to prevent the risk of collapse.

Geneva’s claim is based on the findings of a yearlong study by another auditing firm, PricewaterhouseCoopers, which found “serious failures in its work”, acting cantonal president Robert Cramer said.

“These actions were extremely damaging for the state,” Cramer added.

The cantonal government also created a separate fund to handle SFr5 billion worth of doubtful loans held by the bank.

The 200-page report, written by PricewaterhouseCoopers, said Ernst & Young had used a method of risk evaluation that was “outside legal norms” before and after the cantonal bank merged with another bank in 1994.

The auditor made insufficient provision for these risks and then every year certified as correct accounts that failed to take account of the real financial situation of the bank, the study said.

There was no immediate reaction from Ernst & Young.

Criminal charges

Criminal charges already have been brought against the former director-general of the bank, who is accused of supplying interest-free loans to the head of a Geneva property company over a ten-year period without declaring them to the bank’s board.

The property developer also has been charged.

Ernst & Young is also facing scrutiny in connection with the cantonal bank in neighbouring Vaud.

Switzerland’s banking watchdog has opened an investigation into the loss-making Banque Cantonal Vaudoise (BCV) and the auditor.

The Federal Banking Commission said it would file a criminal suit against those responsible, if suspicions of violation of the Swiss banking law are confirmed.

The statement comes amid allegations that the regional bank and the auditing firm breached required bank diligence rules and also forged documents.

BCV’s bad debt provisions soared to SFr1.7 billion ($1.25 billion) in 2001, forcing the local authorities to inject SFr1.9 billion into the bank to bolster reserves.

An initial probe prompted the sacking of four senior members of the board and management.

swissinfo with agencies

A study says Ernst & Young used an auditing method “outside legal norms”.
Canton Geneva propped up the bank with SFr2.7 billion to prevent its collapse.
Switzerland’s banking watchdog is investigating Ernst & Young in connection with the loss-making Banque Cantonal Vaudoise.

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