Deloitte, EisnerAmper, 5 Others to Pay $235 Million to Settle Aequitas Investors’ Lawsuit

Why go through a lengthy, expensive trial, not knowing whether you’ll win or lose, when you can pay a shit-ton of money to make it all go away?

That’s what the seven defendants, including Deloitte and EisnerAmper, did to settle a class-action lawsuit filed three years ago by investors of Aequitas accusing the accounting firms, two law firms, a securities firm, and others of enabling the now-defunct Oregon investment company of running a Ponzi scheme over a six-year period.

Law360 reported:

Though they deny any liability, the defendant firms each agreed to participate in a unified settlement proceeding netting $234.6 million in proceeds for the investor class. Along with distributions from Aequitas’ receiver, the class’s total recovery will be between $298.6 million and $311.6 million, compared to calculated investment losses of $263.8 million, according to class counsel.

Reports say the settlement could be the largest ever of a securities lawsuit in Oregon.

According to The Oregonian, Deloitte, EisnerAmper, law firm Sidley Austin, securities firm TD Ameritrade, and ratings agency Duff & Phelps will pay a combined $220 million. Law firm Tonkon Torp and Integrity Bank & Trust of Colorado had already agreed to pay $12.9 million and $1.7 million, respectively, in a separate agreement.

Aequitas investors filed a $350 million lawsuit in April 2016, less than a month after the SEC charged Aequitas Management LLC and four affiliates, as well as three executives—CEO Robert Jesenik, executive vice president Brian Oliver, and CFO and chief operating officer N. Scott Gillis—with hiding the deteriorating financial condition of Aequitas while raising more than $350 million from investors.

The investors claimed in their lawsuit that Aequitas and its affiliated companies operated a Ponzi scheme from 2010 until 2016.

The SEC order said Aequitas screwed over more than 1,500 investors nationwide by making them believe they were making health care-, education-, and transportation-related investments when their money was actually being used in a last-gasp attempt to save the firm. Some money from new investors was allegedly used to pay earlier investors.

The SEC alleged that the executives continued to draw their lucrative salaries, use a private jet, and attend posh dinner and golf outings, all at the expense of investors. They used the outings to raise more money from investors. Jesenik, Oliver, and Gillis took home at least $2.5 million in combined salaries during this period.

The Oregonian reported that investors in Oregon never felt comfortable with Jesenik and Oliver because they participated in too many shady deals. But that didn’t stop Aequitas from finding investors out of state:

The Lake Oswego company grew quickly and developed a specialty in buying, selling and servicing debt. To fund its own operations, Aequitas sold debt of its own — much of it to mom-and-pop investors. It recruited a network of investment firms and brokerages from Washington State to New Jersey to sell Aequitas securities. In return, Aequitas offered to pay the middle men a percentage, which some in the industry felt was a clear breach of industry ethical rules.

As Caleb reported in April 2016, the firm’s money in student loan receivables of for-profit education provider Corinthian Colleges evaporated when Corinthian went bankrupt in 2015. That little snafu didn’t stop Jesenik and Oliver from continuing to raise money and Gillis from covering up the liquidity problems.

But the end was near, according to The Oregonian:

[In 2015] Aequitas’ veneer of wealth and respectability also began to crumble. Investors who had purchased more than $600 million in debt securities were stunned when the company began to default on the notes. By March 2016, it was over.

Oliver pleaded guilty to fraud and money laundering charges on April 20. His sentencing is scheduled for Aug. 5.

Deloitte & Touche was Aequitas’ auditor for the years 2013 and 2014, and issued an unqualified opinion in its 2014 audit that Aequitas’ financials fairly and accurately represented the company’s financial condition. But the investors’ lawsuit claimed that by painting a rosy picture of Aequitas’ financial health, the firm “participated in and materially aided unlawful sales of securities.”

Deloitte performed auditing and accounting services for Aequitas in connection with securities that are at issue in this action. Deloitte prepared audited financial statements for Aequitas for the years 2013 and 2014. These audited financial statements were provided to prospective investors and existing investors deciding whether to invest or re-invest. The audited financial statements were a material part of the information made available to investors and the existence of an auditor gave Aequitas clout.

In a statement sent to Law360, Deloitte said:

“Former Aequitas insiders have already pled guilty to perpetuating this fraud and hiding it from their investors and their auditors. We stand behind the quality of our audit work and are participating in this agreement to avoid the ongoing cost, distraction and uncertainty of extended litigation.”

EisnerAmper was named in the lawsuit because the firm was Aequitas’ auditor for the years 2011 and 2012. In a statement to Law360, EisnerAmper said:

“Given the high cost of litigation and the minimal involvement of our firm, we are pleased that this matter has settled.”

The amount that Deloitte and EisnerAmper will each have to pay as part of the settlement has not been made public.

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