Accounting firm Ernst & Young was fined more than $134,000 for allegedly understating its net worth during a trial that resulted in an award of more than $100 million against the company.
Butler County Judge S. Michael Yeager on Friday found the New York-based company in contempt for allegedly presenting evidence during last year’s trial that its net worth was $374 million. Attorneys for plaintiff Barbara Reilly said the firm was worth $950 million, almost three times as much.
The judge said Ernst & Young misled him, but he didn’t rule on the company’s value.
It was unclear what effect the ruling would have on the award. Reilly’s lawyers and Ernst & Young spokesman Ken Kerrigan declined to comment, citing a long-standing gag order by Yeager.
The company’s net worth was used in part to determine how much Reilly would be awarded after Yeager found the company was negligent and caused her to lose her assets in bankruptcy.
In November, Yeager ruled that Ernst & Young wrongfully understated the value of a real estate development company that was partly owned by Reilly and her husband, Thomas J. Reilly, when the company filed for Chapter 11 protection in the mid-1980s.
Had the accounting firm listed the development as an asset instead of debt, the judge ruled, Barbara Reilly would not have lost her share of the multimillion dollar investment.
The Reillys’ company, Canterbury Village Inc., filed for protection after another company started by Thomas Reilly was implicated in a Ponzi scheme. Thomas Reilly has since served jail time after being convicted of fraud for his role in the scheme.
Yeager awarded Barbara Reilly $84 million in compensatory damages – the development’s original value plus interest – and $18.7 million in punitive damages. The punitive damages were calculated based on 5 percent of Ernst & Young’s net worth.
Yeager refused to award money to Thomas Reilly, noting his involvement in the scheme.
Ernst & Young has said it followed bankruptcy procedures in trying to protect any remaining assets for investors who were defrauded by Thomas Reilly.
The Reillys founded Canterbury Village, turning a sprawling farm about 20 miles north of Pittsburgh into a successful residential development known as Seven Fields. The development is now home to about 3,500 people.
While Seven Fields was under development, Thomas Reilly’s Earned Capital Corp. Inc. was accused of overselling units. Once word of the scheme broke, the Reillys filed for Chapter 11 protection for their companies in June 1986, but said they lost their investments because of Ernst & Young’s testimony.
The Reillys said Ernst & Young was responsible for losing their investments because it testified their companies were insolvent. Even after Ernst & Young partners found out the firm wrongly listed the development as at least a $68 million liability, the plaintiffs said the firm didn’t do anything to correct the error.
Ernst & Young maintained that it was an attorney representing Thomas Reilly who decided to put both Canterbury and Earned Capital in bankruptcy and preserve any remaining assets for defrauded investors.
Ernst & Young has said it would appeal the decision because the assets the Reillys claimed to have lost were never theirs in the first place.