Picture: GETTY IMAGES/ JACK TAYLOR
Picture: GETTY IMAGES/ JACK TAYLOR

Singapore — A failed oil trader in Singapore that owes creditors more than $3.5bn is suing Deloitte & Touche, alleging the auditing firm failed to detect “serious irregularities” in its financial statements for more than a decade.

Deloitte audited the books of Hin Leong Trading for at least 16 years before the firm collapsed in 2020 when founding tycoon Lim Oon Kuin admitted trading losses of $808m weren’t reflected in the firm’s financial statements, according to a court filing.

“Deloitte failed to detect the irregularities and the material misstatements” in Hin Leong’s financial affairs, a March 5 lawsuit filed with the high court in Singapore alleges. “Deloitte acted in breach of the terms of its engagement with the plaintiff.”

A representative for Deloitte in Singapore didn’t respond to several e-mails, text messages and calls seeking comment.

In a statement in April 2020, Deloitte said its audit of Hin Leong’s accounts “was performed with the highest standards of audit and compliance with the information made known to us at the time”.

“We stand behind the quality of our work,” a Deloitte spokesperson said in the statement.

A hearing is set for next week in the case.

Wrong-way bets

The oil trading firm began to unravel in 2020 after wrong-way energy bets that eventually led to one of the biggest collapses in the Asian city-state. The trading losses triggered demands for loan repayments by more than 20 banks, including London-based HSBC Holdings and Singapore’s DBS Group Holdings. The case also prompted several major banks to review their exposure to commodities trading.

According to the suit, Deloitte audited and issued “unqualified opinions” for Hin Leong’s financial statements for each of the fiscal years from 2014 through 2019. The firm had in fact been insolvent since at least 2012, and the assets were overstated, the suit claims.

“The material misstatements in the plaintiff’s audited financial statements led to various banks and financial institutions being grossly misled as to the financial health and state of affairs,” Hin Leong claimed in the suit. “Deloitte knew or ought to have known that these banks and financial institutions were intended users of the plaintiff’s audited financial statements and would have relied on the same to extend financing.”

Few assets

The New York-based auditing firm signed off on Hin Leong’s 2019 financial statements, which reported a 69% profit increase from the previous year, to $78.2m. The report, dated March 12 2020, showed assets of $4.6bn. A month later, Hin Leong was placed in interim judicial management, claiming liabilities of $3.5bn and assets of just $257m, according to the suit.

“Had Deloitte carried out the audits of the plaintiff’s financial statements properly, Deloitte would have detected the material misstatements,” and would not have issued unqualified audit opinions, the lawsuit alleges. As a result, “the fraudulent trading and unlawful actions by the directors and former managing director” of Hin Leong would have been discovered much earlier.

Lim, 79, has been charged with forgery. Assets, which include bank accounts, properties and club memberships — and those of his two children — have been frozen by the court. Lim has denied the forgery claim.

Hin Leong was run by court-appointed managers Goh Thien Phong and Chan Kheng Tek since April 2020, and was put into liquidation in March 2021.

The suit adds to a spate of woes for global accounting firms following scandals. Deloitte paid $80m to Malaysia earlier in June in a settlement over the firm’s audit of the state-owned 1MDB fund. The firm said in 2018 it was co-operating with Malaysian authorities and stood by its work.

Ernst & Young (EY) allegedly failed to detect a missing €1.9bn at collapsed German payments provider Wirecard. An EY partner said his firm fell victim to “criminals” at Wirecard, rejecting allegations they didn’t do enough to uncover wrongdoing at the now defunct payment processor.

Bloomberg News. More stories like this are available on bloomberg.com

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