Opinion ID: 511708
Heading Depth: 2
Heading Rank: 2

Heading: The Accountants' Liability

Text: 34 Arthur Young, Sun Saving's independent accounting firm, moved for dismissal of Blake's RICO claims, asserting its single, independent audit in 1983 did not constitute a pattern of racketeering activity. The district court orally granted the motion for reasons given by counsel. 35 An audit encompasses all acts necessary for preparation of the audit report, including review of confidential documents and information, acquisition of knowledge to conduct the audit, and issuance of the audit certification. See Eastern Corporate Fed. Credit Union v. Peat, Marwick, Mitchell & Co., 639 F.Supp. 1532, 1536 (D.Mass.1986), Professional Assets Management, Inc. v. Penn Square Bank, N.A., 616 F.Supp. 1418, 1420-21 (W.D.Okla.1985). To state a RICO claim, the complaint must allege Arthur Young's extensive participation in the enterprise's affairs, beyond conducting an annual audit. Ahern v. Gaussoin, 611 F.Supp. 1465, 1494 (D.Or.1985), see also Bank of America Nat'l Trust & Sav. Ass'n v. Touche Ross & Co., 782 F.2d 966, 970-71 (11th Cir.1986) (accountants provided numerous false financial statements). 36 The complaint alleges Arthur Young prepared and certified Sun Saving's 1983 financial statements. It alleges that this preparation was not done in accordance with generally accepted auditing standards. It alleges Arthur Young knew about a checking account Dierdorff opened at Sun Savings in the name of a fictitious person, but did not tell Sun Saving's Board of Directors. 2 It also alleges that Kenneth Clare, the Arthur Young partner in charge of the Sun Savings account, developed a close personal relationship with Dierdorff, and that the two traveled occasionally to Las Vegas at Sun Saving's expense. It alleges the FHLBB insisted that Sun Savings dismiss Arthur Young as its auditors because of this relationship. 37 Nonetheless, this complaint identifies no acts falling outside the scope of the single audit Arthur Young conducted in 1983. Rather, each alleged act is intimately connected to performance of that audit. There is no allegation that Arthur Young's knowledge of Dierdorff's fictitious account was gained by performance of any services outside the audit. In fact, according to Blake, this knowledge and the failure to reveal it to the Board of Directors contributed to the audit's impropriety. RICO's pattern requirement cannot be satisfied by bootstrapping Arthur Young's knowledge, gained during and in furtherance of the audit, into predicate acts separate from the final audit certification itself. The two are inextricably connected. 38 Moreover, the personal relationship between Clare and Dierdorff and Clare's subsequent dismissal are not separate wrongful acts in furtherance of a criminal scheme. Rather, they too contribute to the impropriety of the 1983 audit. 39 Finally, there are no specific allegations of how Arthur Young participated in mail and wire fraud other than the conclusory allegations of a conspiracy and that Arthur Young made and participated in the making of false financial statements and other public reports. This does not meet the requirement that mail fraud be pled with particularity. Sun Savings, 825 F.2d at 195. 40 Blake has failed to allege adequately two or more predicate acts which would support a RICO claim against the accountants. The district court's dismissal of Arthur Young and Kenneth Clare is affirmed.