Font ResizeA federal judge in Utah has tossed out a claim against the local office of the Grant Thornton accounting firm over its work for iMergent, a technology company that had to restate three years of earnings.
U.S. District Judge Dee Benson's ruling, which also barred the shareholders who sued from trying to assert a new claim, helps define the law in Utah on what legal liabilities accounting firms might have when they audit publicly traded companies where financial irregularities are later found.
Grant Thornton was named in a 2005 lawsuit against iMergent after the company, which provides software and services for online stores, had to restate it earnings for its fiscal years 2002, 2003 for 2004.
"There's no evidence of any complicity, any state of mind that Grant Thornton knew or should have known any fraud was being committed," said Christopher Sullivan, an attorney Howrey LLP, a prominent New York-based law firm whose Utah office represented the accounting firm.
At issue was a company policy that allowed it to report the revenue at the time a sale was made even when those contracts were financed on credit.
In reporting 100 percent of the contracted amount as income, the company relied on an accounting principal that said it could report such income if collection was "probable." However, iMergent only collected about 53 percent of the payments owed to it for the installment contracts.
As the company's independent auditor,
The company restated its earnings, lowering them as much as $100 million, according to the lawsuit. Grant Thornton withdrew its previous opinions of the company's books and iMergent dismissed Grant Thornton as the company's auditors.
Stockholders sued after the company's stock price declined as a result of the earnings restatement. The company settled the case and agreed to provide any evidence for the lawsuit to continue against Grant Thornton.
But in a decision released Monday, the judge said Grant Thornton showed no intention of trying to alter the company's earnings.
"Grant Thornton never had the prerequisite intent to commit fraud," said Scott McCoy, another attorney at Howrey, a large New York firm with offices around the country and overseas.
The accounting firm is "very pleased with Judge Benson's decision as the court rightfully found that the plaintiffs failed to allege facts that would show that Grant Thornton acted fraudulently," the company said in a statement. "Grant Thornton's work complied with professional standards and we are very pleased that this decision ends the case against us."
Attorneys for stockholders did not return e-mails about whether they would appeal to the 10th Circuit Court of Appeals in Denver.
In its annual report, iMergent reported a loss of $7.5 million for the year that ended June 30. The company's headquarters has moved to Phoenix, while its StoresOnline division remains in Orem where the company had formerly been based.
