Spread betting company sues Ernst & Young for negligence

Accountancy firm Ernst & Young & is being sued by a market trading company specialising in spread betting for alleged negligence over its auditing services.

WorldSpreads claims it could not continue to trade after a shortfall was allowed to grow over a number of years in its client account balances, which may exceed £22m (€26m).

It was unable to comply with UK Financial Service Authority (FSA) regulations and led to its board putting the company into special administration in March last year.

It claims Ernst & Young & was negligent in the performance of its services and obligations to WorldSpreads Ltd in connection with audits carried out between 2007 and 2011.

The case was transferred to the Commercial Court yesterday by Mr Justice Peter Kelly on consent between the parties.

WorldSpreads Ltd is registered in the UK and a wholly-owned subsidiary of WorldSpreads Plc, which is registered in Ireland. It was an online financial markets trading business whose principal activity was the provision of spread betting services, including on foreign exchange, futures and options.

Ernst & Young, Harcourt Centre in Dublin, acted as its auditors since 2007 and was engaged to carry out audits under the FSA’s supervision rules, it is claimed.

In 2008 and 2009, as a result of reports into WorldSpreads Ltd’s activities by the FSA, concerns were raised about the transaction reporting of WorldSpreads Ltd.

WorldSpreads Ltd says Ernst & Young & issued unmodified opinions on its financial statement audits from Mar 2007 which although they provided a list of breaches of the regulations, they also stated WorldSpreads Ltd maintained systems to comply with the relevant FSA “client asset sourcebook” rules.

However, in Mar 2012, as a result of certain disclosures by WorldSpreads Ltd’s finance controller, the company became aware there was a substantial shortfall in the amount of client money which ought to have been held in a segregated and the amount which was actually held.

WorldSpreads Ltd says the shortfall to clients may exceed £22m.

It claims that Ernst & Young failed to consider the concerns of the FSA and failed to identify that financial statements and/or reports received from it had been manipulated.

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