Global equity firm Bain Capital Partners LLC is suing EY (Ernst & Young) in a US court for false auditing reports showing inflated sales figures for Indian firm Lilliput Kidswear, which turned into a huge loss of $60 million.
Battered Bain, which is exiting from another Indian company Hero Motocorp, is moving the court in US against EY for “fraud, aiding and abetting fraud, negligent misrepresentation, and unfair and deceptive trade practices based on EY’s involvement in the scheme to defraud Bain.”
Bain invested $60 million in Lilliput in May 2010 for a stake of 30.99% based on what it says false financial statements provided by EY.
EY, however, remained defensive saying, “These allegations of wrongdoing are baseless and EY will vigorously defend this matter,” without any elaboration on allegations.
Bain’s investment was a precursor to Lilliput’s IPO move in 2012 that went bust after Reuters reported the fraud involved in the company’s real worth.
Bain later conducted its own investigations and halted the Lilliput IPO process after finding inflated sales figures for the Lilliput Kidswear company, said the suit, according to Reuters.
Bain alleged it was specifically targeted by EY, which was in the know-how of its cash position. The suit said Bain invested in Lilliput because it relied on false financial statements and EY’s false audit opinions.
Bain said EY continued to certify Lilliput financial statements “even as Lilliput’s fraud grew with EY’s active assistance”, according to a copy of the complaint filed with the Suffolk County Court, according to Reuters.
Meanwhile, battered Bain is also withdrawing from another India company Hero MotoCorp to sell shares worth approx $300 million.
Hero MotoCorp was formed after Japanese firm Honda split with it and withdrew entirely from it. Bain is now considering full withdrawal, if possible, say reports.