Atkins Investment Partnership, et al. v. EisnerAmper, LLP, et al. was filed in the Northern District of California on February 8, 2021, claiming civil damages from an auditor that allegedly aided and abetted its client’s Ponzi scheme by providing false audits. Specifically, the complaint alleges negligent misrepresentation, common law fraud, aiding and abetting fraud, aiding and abetting breach of fiduciary duty, and aiding and abetting securities fraud in violation of California Corporations Code section 25403.
Plaintiffs are nearly 140 individuals, trustees, and entities claiming to be investors of over $103 million in the Direct Lending Income Fund, L.P. (“DLIF”). The defendant is EisnerAmper, LLP, a large auditing firm that provided auditing services to DLIF. Plaintiffs also name up to 20 agent/employee “Doe” defendants.
According to the complaint, DLIF engaged in direct lending by purchasing small, short term loans with prime credit borrowers and purported to allow for high and consistent returns while retaining enough liquidity to allow investors to exit with short notice. In 2019, when DLIF was valued at an estimated $789 million, the SEC brought a fraud action against Direct Lending Investments, LLC (“DLI”), which managed and controlled DLIF, leading to the scheme’s demise. The SEC alleged that the loans held by DLIF were either in default or did not exist, that the CEO of DLI was in some way self-dealing, and that DLI began investing in high-risk speculative ventures that were inconsistent with its servicing model. Plaintiffs in this action claim that DLIF operated in Ponzi fashion with the help of Defendant EisnerAmper because investors heavily relied on the representations made in each audit supplied by EisnerAmper—audits that were allegedly negligently, recklessly, and intentionally incorrect. Plaintiffs allege that EisnerAmper was aware or should have been aware of red flags and misrepresentations made by DLIF and DLI, and that it neglected to follow generally accepted accounting principles generally accepted auditing standards in auditing the accounts.
Plaintiffs claim damages (special, general, rescissionary, punitive, and exemplary), attorney’s fees, and interest.