Pantia, Patrik Oliver E.

Acctng313n – MW 7:30AM – 9:30AM

BSA – 3B 9/20/20
Reaction Paper
Accounting scandals have always been common especially involving large companies
such as Enron. This time another one of those so called four big accounting firms faced such
similar fate, Deloitte the auditor of Fortress Reinsurance Company, an American aviation
reinsurance company based on Burlington, North Carolina owned by Maurice “Chico” Sabbah
and Kenneth Kornfeld. The company suffered a tremendous financial failure due to the 9/11
attacks in 2001, allowing them to pool the funds of several insurance companies to share the
risk of reinsuring aviation portfolios. The following year, Japanese insurance company took legal
actions against Fortress Re, alleging that the company misrepresented losses and claimed that
Deloitte helped them hide the losses estimated at $3.5 billion.
According to the article wrote by News & Report, it is unclear how much Deloitte will
pay the Japanese insurance companies but it was later revealed, estimated by Wall Street
journal to be at $250 million. By far the largest settlement that was ever paid by a big four
accounting firm and definitely not the last one. An exact quote from the article of News &
Report states that “Deloitte will pay a reported $250 million to settle fraud claims over its audits
of Fortress Re, a now defunct reinsurance company founded by a local philanthropist”. It seems
that it was later proven that Deloitte did overlooked and aided Fortress Re in hiding the losses.
They have kept a huge amount for themselves instead of saving it to cover the claims of the
four planes that crashed in 2001 that they supposedly insured. I am not surprised on how much
human selfishness can go and their own greed took a toll to their company as well. It seems
that cases like this will be much more prevalent as I enter the corporate world because there
are things that are happening in the corporate world that are invisible to the public’s eyes. I
think it was only fitting that the company was able to pay their crimes accordingly. At the same
time, it saddens me that even with all values, guidelines or standards that are imposed to us as
we become professionals, selfishness and greed can easily break such. Perhaps it is human
nature? I cannot say with certainty.
In the end, it was never stated that Deloitte did actually helped Fortress Re in misstating
their losses but the fact that they are responsible for auditing their financial statements and
their inability to detect such only complicates everything. Was it an overlooked to Deloitte’s
part or it was intentional? We will never know. However, what haunts me is that, are these big
companies will always be able to slip through because they can always pay for their actions. In
this case, it will only become an unending cycle and somehow it’s unnerving to even think
about it.
Sources: https://greensboro.com/news/general_assignment/auditor-settles-fortress-re-suit/article_e28cf2fd-adc1-
56c6-b24d-8ce41e933aed.html?fbclid=IwAR3RpDcqCtxBOyUq-yGjqkacoFUgPprOsKM8f1XMzY_WxIG0HIvIpuVUyio

https://en.wikipedia.org/wiki/Fortress_Re