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KMPG Memo on Motion for Summary Judgement

KMPG Memo on Motion for Summary Judgement

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IN THE UNITED STATES DISTRICT COURTFOR THE DISTRICT OF COLUMBIA
In re Fannie Mae Securities LitigationMDL No. 1668Civil Action No. 1:04-cv-01639 (RJL)
KPMG LLP’S MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OFITS MOTION FOR SUMMARY JUDGMENT
F. Joseph Warin (D.C. Bar No. 235978)John H. Sturc (D.C. Bar No. 914028)Scott Fink (
 pro hac vice
)George H. Brown (
 pro hac vice
)Andrew S. Tulumello (D.C. Bar. No. 468351)GIBSON, DUNN & CRUTCHER LLP1050 Connecticut Avenue, N.W.Washington, D.C. 20036Telephone: (202) 955-8500Facsimile: (202) 467-0539
Counsel for KPMG LLP 
Case 1:04-cv-01639-RJL Document 937-1 Filed 08/22/11 Page 1 of 48
REDACTED
 
 i
TABLE OF CONTENTS
Page
INTRODUCTION .......................................................................................................................... 1
 
ACCOUNTING AND AUDITING ................................................................................................ 3
 
ARGUMENT .................................................................................................................................. 6
 
I. PLAINTIFFS CANNOT SHOW THAT THE KPMG AUDITORS ACTED WITHSCIENTER ..................................................................................................................................... 6
 
A.
 
The Undisputed Evidence Negates Any Claim that Accounting PolicyDisagreements Show Auditor Fraud ............................................................................... 8
 
1.
 
Plaintiffs Cannot Show That No Reasonable Accountant Could HaveAccepted Fannie Mae’s Approach to FAS 133 When OFHEO, Other Major Financial Institutions, the Big Four Accounting Firms, the Staff of the SEC, and Plaintiffs’ Own FAS 133 Expert Say Otherwise ............................ 14
 
2.
 
Plaintiffs Cannot Show That No Reasonable Accountant Could HaveAccepted Fannie Mae’s Use of a Precision Threshold When Plaintiffs’Subject Matter Expert Says Auditing Literature Supports This Concept ............. 17
 
3.
 
Plaintiffs Cannot Show That No Reasonable Accountant Could HaveAccepted Fannie Mae’s FAS 115 Policy When Plaintiffs’ FAS 115 ExpertIs Not Sure and Denies the Policy Could Be Used to Manipulate Earnings ........ 21
 
B.
 
Plaintiffs Cannot Claim “No Audit At All” .................................................................. 23
 
1.
 
Plaintiffs Do Not Dispute KPMG’s Effort ........................................................... 23
 
2.
 
Mr. Berliner Criticizes the Auditors’ Professional Judgments, Not Their Intent ..................................................................................................................... 25
 
C.
 
Plaintiffs Offer No Evidence Regarding KPMG’s Auditing of Any Other Accounting Issue ........................................................................................................... 31
 
II. PLAINTIFFS HAVE FAILED TO ATTRIBUTE ANY OF THEIR CLAIMEDDAMAGES TO ANY STATEMENT BY KPMG ....................................................................... 36
 
A.
 
KPMG Cannot Be Liable for Statements Made by Others ........................................... 37
 
B.
 
Plaintiffs Have Not Proven that KPMG Caused Any of Their Losses ......................... 39
 
CONCLUSION
........................................................................................................................... 41
 
Case 1:04-cv-01639-RJL Document 937-1 Filed 08/22/11 Page 2 of 48
 
 ii
TABLE OF AUTHORITIESCases
 
 Acito v. IMCERA Grp., Inc.
47 F.3d 47 (2d Cir. 1995) ......................................................................................................... 29
 Bouchard v. Am. Home Prods. Corp.
, NO. 3:98 CV 7541, 2002 WL 32597992 (N. D. Ohio May 24, 2002) ..................................... 12
Celotex Corp. v. Catrett 
,477 U.S. 317 (1986) .................................................................................................................... 7
Cent. Bank of Denver, N.A. v. First Interstate Bank of Denver, N.A.
,511 U.S. 164 (1994) ............................................................................................................ 39, 41
*Dronsejko v. Grant Thornton
, 632 F.3d 658 (10th Cir. 2011).............................................. 10, 34
 Erica P. John Fund, Inc. v. Halliburton Co.
,131 S. Ct. 2179, 2184 (2011) ...................................................................................................... 6
*Ernst & Ernst v. Hochfelder 
,425 U.S. 185 (1976) .................................................................................................................... 7
 Ferris, Baker Watts, Inc. v. Ernst & Young, LLP 
,395 F.3d 851 (8th Cir. 2005) ...................................................................................................... 7
 In re AOL Time Warner 
,
Inc. Sec. Litig.
,503 F. Supp. 2d 666 (S.D.N.Y. 2007) ................................................................................ 42, 43
 In re Ceridian Corp. Sec. Litig.
,542 F.3d 240 (8th Cir. 2008) .................................................................................................... 34
*In re IKON Office Sol. Inc.
,277 F.3d 658 (3d Cir. 2002) ............................................................................... 8, 28, 29, 31, 34
 In re MIVA
,
Inc. Sec. Litig.
,2009 U.S. Dist. LEXIS 127748 (M.D. Fla. Aug. 25, 2009) .................................................... 42
 In re Moody’s Corp. Sec. Litig 
.,2011 WL 1237690 (S.D.N.Y. Mar. 31, 2011) .......................................................................... 42
 In re REMEC Sec. Litig.
,702 F. Supp. 2d 1202 (S.D. Cal. 2010) ............................................................................... 14, 15
 In re The First Marblehead Corp. Sec. Litig.
,639 F. Supp. 2d 145 (D. Mass. 2009) ....................................................................................... 15
Case 1:04-cv-01639-RJL Document 937-1 Filed 08/22/11 Page 3 of 48

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