Creditors of bankrupt Tower Airlines have filed suit in Baltimore County Circuit Court against Ernst & Young and are seeking $380 million in damages from the accounting firm. The creditors case alledges that Ernst & Young's audit team assisted Tower in inflating profits and masking its losses, was overly cozy with Tower's CEO and even when to far as to destroy evidence on Tower's behalf. The suit claims that:

"Ernst & Young's accounting failures led Tower Air to report a pretax profit of $4.6 million in 1998, when it actually lost about $17 million. And Tower Air's reported $3.9 million loss in 1997 was actually at least $41 million larger, the suit states. It goes on to say that the firm never reconciled Tower Air's payroll account, failed to disclose that Tower Air owed $9 million in back excise taxes, and failed to book $2.75 million of travel agents' commissions as an expense."

For the rest, go visit Accountingweb.com who has the full story. Also referenced is a Baltimore Business Journal story, which you can find here (registration may be required).

Also, note the mention of Wayne State law professor, Peter Henning, who provides commentary in the article. Peter runs his own fine blog which covers white collar crime issues.

-- MDT

Labels: Peter Henning