Deloitte sues vice chairman for client stock trades
Fri Nov 7, 2008 7:49pm ESTPost Your Comments | All Comments Email | Print | Share | Reprints | Single Page | Recommend (0) [-] Text [+]
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Trading will never be the same.
By Emily Chasan

NEW YORK, Nov 7 (Reuters) - U.S. accounting firm Deloitte & Touche LLP [DLTE.UL] has sued its former vice chairman for trading in securities of the firm's audit clients.

In a lawsuit filed Oct. 29 in Delaware Chancery Court, Deloitte said Thomas Flanagan, a partner for 30 years in the "Big Four" firm's Chicago office, had "violated his obligations to Deloitte and betrayed the trust of his partners."

Flanagan resigned about two months ago, according to the lawsuit.

"Flanagan repeatedly lied to Deloitte about his clandestine trading activities in annual written certifications, going so far as to conceal the existence of a number of his brokerage accounts to avoid detection," Deloitte said in the lawsuit.

Deloitte also said its policies prohibit employees of the firm from having financial interests in its audit clients and other "restricted entities" and that employees are barred from trading in companies about which they possess material, nonpublic information.

"Deloitte unequivocally condemns the actions of this individual, which are unprecedented in our experience. His personal trading activities were in blatant violation of Deloitte's strict and clearly stated policies for investments by partners and other professional personnel," Deloitte said in a statement on Friday.

Deloitte said in the lawsuit that the conduct was brought to its attention in August 2008, by an unnamed regulatory agency. The agency had asked the firm to provide a contact list for the members of a client's audit committee and top executives who had contact with that client. The client had announced an acquisition in July 2007 and Flanagan purchased stock in the acquisition target about one week before it was publicly announced, the court documents said.

Between January 2005 and 2008, the lawsuit claims Flanagan engaged in numerous trades of put and call options with respect to securities of at least 12 of Deloitte's audit clients, for seven of which he was Deloitte's advisory partner, Deloitte said in the suit.

Deloitte said it confronted Flanagan about the investigation and he said he was aware of the regulatory investigation.

Deloitte is accusing Flanagan of breach of fiduciary duty, breach of contract and fraud. It is seeking repayment of Flanagan's compensation from the first improper trade until his resignation, damages from losses it says it suffered due to the investigation and any other damages deemed proper by the courts.

Attempts to reach Flanagan for comment were unsuccessful. (Reporting by Emily Chasan; Editing by Gary Hill)