Ailing firm files lawsuit

Carnegie is seeking $2.1 billion from its former accountant


May 24, 2000|By Bill Atkinson | Bill Atkinson,SUN STAFF

Carnegie International Corp., a Hunt Valley telecommunications holding company, filed a lawsuit yesterday against its former accountant for $2.1 billion, alleging that the firm made errors and tried to cover them up.

As a result, Carnegie was dropped from the exchange where its stock traded, lost hundreds of millions in market capitalization, and "lucrative commercial transactions," according to the lawsuit filed in Baltimore City Circuit Court.

The lawsuit against Grant Thornton LLP, and Arthur Flach, the accounting firm's managing partner, seeks $600 million in compensatory damages and $1.5 billion for punitive damages."It is the policy of Grant Thornton not to comment on the merits of the case," said Larry Elliott, an attorney in Pittsburgh at Cohen & Grigsby. "We will defend it in court."

In papers filed in court yesterday, Grant Thornton denied "any wrongdoing in connection with the audits" of Carnegie's financial statements and moved to dismiss the lawsuit.

Elliott dismissed the huge amount that Carnegie is seeking, calling the size of the damages "ludicrous.""A lawyer can put any number of zeros after 1," he said.

Grant Thornton's Flachs declined to comment, and referred calls to Elliott.

William H. Murphy Jr., who is representing Carnegie, declined to comment.

Carnegie hired Grant Thornton in December 1997 to audit the company's books and provide accounting services.

On April 27, 1999, Carnegie filed a document with the Securities and Exchange Commission as it prepared to begin trading its stock on the American Stock Exchange.

Carnegie's stock traded the next day, but on April 29, the SEC contacted Carnegie about concerns with the filing. The agency questioned how the company accounted for acquisitions made in 1997 and the following year.

Trading in the company's stock was halted that day after Amex officials learned of the SEC's inquiry. Six months later, Carnegie's shares were delisted, which means they could no longer trade on the Amex.

The shares trade over the counter and yesterday rose 6.25 cents to 93.75 cents.

Carnegie fired Grant Thornton on Sept. 24, 1999. It alleges in the lawsuit that instead of correcting its errors, Grant Thornton "engaged in a course of conduct to conceal its culpability, and to avoid its liability for these errors by maliciously attempting to drive Carnegie out of business."

Carnegie said in the filing that it has lost business and faces a lawsuit by shareholders.

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