Ernst & Young Sued by Investors Over $17 Million Loss in Parkcentral Funds

Investors in Parkcentral Capital Management LP hedge funds, whose investments were wiped out in 2008, sued Ernst & Young LLP, accusing the accounting firm of fraud in its role as the funds’ auditor.

Ernst & Young concealed information and “facilitated, assisted in and participated in” securities fraud by the managers of the funds, the investors claimed in a complaint filed yesterday in state court in Houston.

“E&Y was supposed to be auditing Parkcentral, but the audited financial statements never once warned Parkcentral’s investors of their impending doom,” Demetrios Anaipakos, an attorney for the investors, said in a statement today.

Parkcentral, based in Plano, Texas, marketed its funds by saying its money managers had invested for billionaire and former presidential candidate Ross Perot and his family, according to the lawsuit. The Parkcentral Global Hub Ltd. fund lost more than $2.6 billion due to a “catastrophic and concentrated risk in a single investment strategy,” according to the complaint.

Charles Perkins, a spokesman for New York-based Ernst & Young, declined to comment.

The investors suing the company are Brown Investment Management LP, MBB Ventures LLC, SBS Ventures LLC, Thomas R. Brown Family Private Foundation and Gus Comiskey. They lost a total of $17 million invested in two Parkcentral funds that went into liquidation, according to the complaint, and seek actual and punitive damages.

The case is Brown Investment Management LP v. Ernst & Young LLP, 10-53393, Harris County District Court (Houston).

To contact the reporter on this story: David McLaughlin in New York at dmclaughlin9@bloomberg.net.