Lipper Convertibles, L.P. Litigation

The Situation

Continental Casualty Co. v PricewaterhouseCoopers LLP; Eagle Partners L.P. v. PricewaterhouseCoopers LLP; Jones v PricewaterhouseCoopers LLP; Andrew E. Lewin et al vs. PricewaterhouseCoopers LLP; CILP Associates, L.P. and Cohen Pooled Assets L.P. vs. PricewaterhouseCoopers LLP

Plaintiffs, former limited partners of private investment hedge fund Lipper Convertibles, L.P. ("the Fund"), asserted direct claims of fraud against the fund’s auditor, PricewaterhouseCoopers LLP (“PwC”), alleging they had been fraudulently induced to rely on improper audits when making their initial investments in the fund. Defendant PwC moved to dismiss the fraud claims, arguing that plaintiffs had pleaded no injury distinct from the injury attributed to the Fund as a whole, which was the subject of a separate action that had been brought by the Trustee on behalf of all injured limited partners.

NERA's Role

NERA was asked by counsel for PwC to address the extent of any distinct, nonderivative injury plaintiffs may have suffered. The results of NERA’s analysis of the sources of the losses allegedly suffered by the plaintiffs in the actions were presented in an affidavit filed by Senior Vice President Dr. Chudozie Okongwu. The affidavit showed that all of the damages articulated by plaintiffs were derivative as they consisted only of plaintiffs’ pro rate share, as limited partners, of the Fund’s losses arising from (1) net income loss, (2) overpayments of general partner fees, and (3) overpayments of capital to withdrawn limited partners.

The Result

Continental Casualty Co. v PricewaterhouseCoopers LLP, Eagle Partners L.P. v. PricewaterhouseCoopers LLP, and Jones v PricewaterhouseCoopers LLP: In November 2007, the Supreme Court of the State of New York, County of New York, granted PwC’s motion for summary judgment dismissing the fraud cause of action, finding that PwC had demonstrated that plaintiffs’ claims were derivative, not direct. The Court cited Dr. Okongwu’s affidavit in the decision. The Supreme Court, Appellate Division, First Department, New York affirmed this decision in December 2008, granting leave to appeal. The Court of Appeals of New York affirmed the decision in June 2010.

Andrew E. Lewin et al vs. PricewaterhouseCoopers LLP, CILP Associates, L.P. and Cohen Pooled Assets L.P. vs. PricewaterhouseCoopers LLP: In November 2010, the United States District Court, Southern District of New York, granted PwC’s motion for summary judgment, noting that “PwC, as the moving party, has with the help of expert testimony met its initial burden of demonstrating the absence of a genuine issue of material fact as to the existence of direct - as opposed to derivative - injury.” The Court cited Dr. Okongwu’s affidavit in the decision.