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The hospital’s founder, Bavaguthu Raghuram Shetty, who is seeking $7 billion in a lawsuit, insists he was the victim rather than the perpetrator of the fraud.
Ernst & Young is accused of “actively concealing” a six-year fraud from investors in a new lawsuit over its audit work for troubled NMC Health.
The hospital’s founder, Bavaguthu Raghuram Shetty, said the accounting giant had a “deep and cozy” relationship with executives of the troubled company, claiming its auditors are turning a blind eye to thousands of suspicious transactions. Shetty demands $7 billion from the lawsuit.
The Indian entrepreneur filed suit in New York last week, citing Ernst & Young as a co-conspirator in the fraud alongside former executives, saying investors lost more than $10 billion.
“EY’s misconduct was not professional negligence, but rather that EY actively and intentionally colluded with the defendants to conceal their fraudulent conduct,” Shetty’s attorney said in the court files.
The allegations of fictitious billing and inflated financial health between 2013 and 2019 are the most detailed yet from Shetty, who is separately fighting creditor claims after NMC’s collapse in April last year.
The company was placed under surveillance by a London court in April last year when health care provider issues surfaced. The company’s shares plunged in late 2019 before falling further amid fraud allegations.
Lawyers for Shetty declined to comment outside of the trial.
The latest lawsuit puts even more legal and regulatory pressure on Ernst & Young, which is now preparing to defend multiple lawsuits over the quality of its audit.
“We believe this case is unfounded and we intend to vigorously defend it,” Ernst & Young said in a statement about the US lawsuit.
Shetty, NMC’s second-largest shareholder, is seeking approximately $7 billion in the New York lawsuit. He has continued his own investigation as he maintains that he was the victim rather than the perpetrator of the fraud. He is facing a lawsuit from NMC’s main creditor alleging that he oversaw the fraudulent transactions.
He has now turned his wrath on the auditor, saying it went from being a “pliable auditor doing soft audits” to an “active co-conspirator”.
Ernst & Young, which audited both NMC and other affiliates, never questioned financial numbers and continued to stamp the audit certificates, Shetty said. Any remote review would have noticed red flags, including thousands of transactions shuttled between group companies, he said.
On one occasion, the accountants certified account balances at a group company without receiving the corresponding bank statements, the claim said.
In another, Ernst & Young was sent spreadsheets with sales figures for the whole of 2019, although the document was prepared in September of that year.
The former executives forged Shetty’s signature on 127 personal guarantees tied to about $4.5 billion in loans, he said. Lenders are now seeking repayment on those same loans, he said.
The filing also detailed payments to the executives and board members, with Shetty saying they appeared to be paying themselves bribes.
The former executives deny doing anything wrong, a London judge said in a ruling on a separate case.
The New York lawsuit comes as the accounting firm faces a separate legal claim filed by NMC’s London trustees Alvarez & Marsal. The accountant is also under investigation by the UK accounting watchdog over NMC’s 2018 financial statements.
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