Southern District of New York Reaffirms That An Auditor’s Economic Interest in Professional Fees Is Insufficient To Establish Scienter

On July 17, 2023, Judge Furman of the United States District Court for the Southern District of New York issued an order dismissing securities fraud claims against Ebix, Inc, a Georgia-based e-commerce company, relating to alleged misstatements regarding the company’s internal control over financial reporting. Although the plaintiff did not bring claims against Ebix’s auditor, he alleged that the company “offered [the auditor] a quid pro quo of lucrative auditing fees . . . in exchange for a clean opinion.” The Court rejected that argument, holding that plaintiff alleged no facts supporting its conclusory allegation and explaining that “it has been long held that generalized economic interest in professional fees is insufficient to establish an accounting firm’s motive to commit fraud.”

The case is Saraf v. Ebix, Inc., 21-CV-1589 (S.D.N.Y. July 17, 2023). Plaintiff is represented by Berger Montague PC. Defendants are represented by Skadden, Arps, Slate, Meagher & Flom LLP. A copy of the decision is attached.