Peterson v. McGladrey & Pullen, LLP (In re Lancelot Investors Funds, L.P., et al.)
- Summarized by Paul Lucey , Leverson Lucey & Metz, S.C.
- 13 years 11 months ago
- Citation:
- Case No. 10-3770 (7th Circuit); Decided April 3, 2012
- Tag(s):
-
- Ruling:
- Order by U.S. District Court for N.D. Ill. dismissing Trustee's negligence claim against debtors' former auditor (for failure to discover a Ponzi scheme involving the debtors) is reversed and case remanded. Facts plead in complaint (and facts district court apparently took notice of) did not establish auditor's in pari delicto defense. But such a defense would be available, if the facts established in subsequent proceedings support it. The cause of action, as defined under Illinois law, permits such a defense. When the cause of action became property of the estate under Section 541, the in pari delicto defense was not stripped from it.
- Procedural context:
- Chapter 7 Trustee appealed order by U.S. Dist. Ct. for N.D. Ill. dismissing Trustee's complaint against debtors' former auditors for negligence based on auditor's in pari delicto defense.
- Facts:
- Debtor mutual funds collapsed in late 2008 as a result of investments in what turned out to be a Ponzi scheme operated by Tom Petters, an acquaintance of Greg Bell, the debtors' principal. Bell discovered the scheme not later than early 2008. Chapter 7 trustee sued Debtors' auditors for negligently failing to discover the Ponzi scheme in 2006 and 2007. The auditors moved to dismiss, claiming Bell knew of the scheme and/or misrepresented to the auditors material facts about Petters' companies during the relevant time frame.
- Judge(s):
- Easterbrook, Chief Judge, Bauer and Sykes, Circuit Judges. Opinion by Easterbrook.
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