The board of the cells that make up the Arch Cru funds has launched a £3.7 million legal battle against the cells’ former auditors in a bid to recover money owed to its 20,000 investors.
The board has accused Moore Stephens of breaching its duty as auditor by failing to detect overstatements of the value of assets held by the cells and failing to exercise reasonable care in considering the valuations of the cells’ investments.
It is the latest in a long line of legal battles launched by the current board against parties in relation to the Arch Cru funds’ failure, with its claims totalling around £334 million.
In January 2012 it started proceedings against the funds’ investment managers Arch Financial Products. This was followed by a case against Arch’s chief executive Robin Farrell for £20 million. The board had also issued legal action against the cells’ former directors and former administrators Bordeaux Services.
Moore Stephens was appointed to audit the Channel Island-listed cell companies that make up the Arch Cru funds’ financial statements in June 2008.
The board alleges there were delays in submitting audited statements and that the auditors accepted a commentary in the financial statements written by Arch Financial Products which said the financial crash of September 2008 had ‘no significant impairment’ on the cells which had been ‘relatively unaffected’.
The board argued there had in fact been a substantial fall in the value of the ships the cells invested in as a result of the September 2008 shipping market collapse.
The board alleges Moore Stephens should have considered this was misleading and possibly revised it to disclose an estimate of the financial impact of the fall in the ships’ value.
The board argued if Moore Stephens had complied with its duties it would have had sufficient time to obtain proper audit evidence and concluded there was inadequate support for the valuations of a number of the cells’ investments and referred its conclusions to the Guernsey Financial Services Commission, which it said would have led the cells to cease further investments pending a full review and possibly replace Arch as investment manager.
Moore Stephens were unavailable for comment at the time of going to press.