For a number of years, management of Cenco, Inc., engaged in a massive fraud. The fraud began in the company’s Medical/Health Division and eventually spread to Cenco’s top management. By the time the fraud was made public, even the chairman and president were involved in the fraud. Seidman & Seidman was Cenco’s auditor throughout the period of the fraud. The fraud involved primarily the inflating of inventories in the Medical/Health Division above their fair market value to increase its stock price. Thus, the fraud did not involve stealing from the company. Rather, the fraudsters had devised ways to steal from outsiders (e.g., creditors and insurers) to the benefit of existing shareholders.Cenco’s new management filed breach-of-contract, negligence, and fraud claims against Seidman& Seidman, and a trial date was set. One day before the start of the trial, Seidman & Seidman offered to pay.
3.3 $million to settle the class action suit, but Cenco turned the offer down. Prior to submitting the case to the jury, the trial judge granted a directed verdict in favor of Seidman & Seidman on the claim that the CPA firm had aided and abetted the fraud. ** The case went to the jury on the three remaining counts of breach of contract, negligence, and fraud.
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