A lawsuit pitting Anaheim-based Targus Group International Inc. against accounting firm KPMG LLP is nearing a trial.
Targus accuses KPMG of failing to provide accounting services that could have prevented one of Orange County’s largest embezzlement cases ever.
The suit is set to go to trial Sept. 19.
Targus, a maker of computer accessories, sued KPMG several weeks after its former chief financial officer, William Lloyd, was sentenced to 37 months in jail for embezzlement in late 2002.
Targus charged KPMG with poor oversight as its accountant, according to court filings. The company hasn’t said how much it’s seeking in damages. It alleges it suffered about $50 million in embezzlement-related losses.
KPMG denies the charges.
“We continue to believe that we performed our services for the company in a professional manner and that the loss Targus incurred resulted from the acts of a dishonest officer, who management at Targus failed to supervise,” said Tom Fitzgerald, spokesman for KPMG in Montvale, N.J. “We are confident the jury understands Targus is responsible for its own actions.”
Targus said KPMG “negligently and carelessly” performed its services, failing to “employ the skill, prudence and diligence required of them as certified public accountants,” according to an updated version of the complaint filed in late July.
The company also accuses KPMG of intentional or reckless disregard for the facts and misrepresenting “important matters” to the board, according to the suit.
Targus is a privately held company that sells notebook cases and computer accessories. Its yearly sales are about $400 million and it has more than 300 workers.
The company, which now uses Ernst & Young International as its accountant, is owned by Greenwich, Conn.-based private equity firm Saunders, Karp & Megrue.
Saunders, Karp hired Merrill Lynch & Co. and Citigroup Global Markets earlier this year to shop the company to prospective buyers.
Lloyd became Targus’ chief financial officer in 1993. Three years later he began to embezzle from the company by using Targus’ cash sources, including lines of credit and depository accounts, to fund personal and business investments unrelated to Targus, according to the suit.
The company became suspicious of Lloyd in the summer of 2001, according to the suit. That September he was arrested. Two months later Lloyd pleaded guilty to 15 counts of fraud.
Targus contends that KPMG failed to perform accounting services according to generally accepted auditing standards, according to the suit.
“When a company like Targus hires what is marketed to the company as a world-class accounting firm, the company certainly has the expectation that the world-class auditing firm is going to do exactly what they’ve been (brought in) to do and that is to audit the books and records of the company,” said Michael Avenatti, a lawyer with Greene Broillet & Wheeler in Los Angeles who is representing Targus.
Avenatti recently won a modest victory in the case. The court ruled KPMG was withholding key documents and ordered the accounting firm to hand them over to Targus.
KPMG’s Fitzgerald said the firm “fully complied with all discovery orders in the Targus case,” and has filed an appeal on the documents issue.
The case, which will be tried in Orange County Superior Court, could last several weeks, according to Targus lawyer John O’Malley with law firm Call, Jensen & Farrell in Newport Beach.
