The Missouri Department of Insurance (MDI) has filed a lawsuit against KPMG, the international accounting and consulting organization, alleging errors, omissions and misrepresentations in the handling of its client General American Life Insurance Co. (GALIC)
The MDI’s website explains that due to a “liquidity crisis,” GALIC was placed under MDI administrative supervision in August 1999. “At that time, all parties agreed that the best solution was the sale of GALIC and its affiliates. Metropolitan Life Insurance Co. (MetLife) purchased the companies from General American Mutual Holding Co. (GAMHC) for $1.2 billion on Jan. 6, 2000. MDI administrative supervision ended at that time.”
However, as reported by the Associated Press, the MDI has charged that KPMG, in its role as a consultant, advised GALIC to sell high risk investment products, described as “Stable Value funding agreements,” which gave investors high returns, and could be redeemed with 7 days notice. When GALIC’s ratings were lowered many investors exercised their right to cash in their funds. The company was unable to meet the sudden demand and was taken over by the MDI. Its parent GAMHC was forced into receivership, and eventually sold GALIC to MetLife.
The MDI’s complaint, filed in Jackson County Circuit Court in Kansas City, alleges that KPMG failed to advise the company of the high risk nature of the investment, failed to disclose the potential liabilities, did not exercise due care in performing audits and was not forthcoming with MDI investigators when they began administering GALIC.
The AP reported that KPMG said it had not yet received the complaint, and had no comments on the charges
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