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Accounting firm E&Y ShinNihon faces $9bn suit from Toshiba shareholders

Auditor partly responsible for conglomerate's financial debacle, plaintiffs say

The plaintiffs argue that E&Y condoned Toshiba's delayed disclosure of financial woes at Westinghouse subsidiary S&W, leading to huge losses for shareholders.

TOKYO -- Ernst & Young ShinNihon, the auditing firm for Japanese conglomerate Toshiba, is facing a shareholder lawsuit worth $9 billion, with the plaintiffs accusing the auditor of neglect in the case of Toshiba's troubled investment in Westinghouse Electric, it was learned Monday.

The plaintiffs -- individual investors in Toshiba -- argue that Ernst & Young is partly responsible for Toshiba's failure to disclose losses at Westinghouse in business years 2012-13. Had these losses been disclosed earlier, they say, the shareholders would have been able to prevent Westinghouse from digging itself deeper into a hole through its acquisition of nuclear construction company CB&I Stone and Webster (S&W) in 2015.

Westinghouse's business troubles were made worse after the S&W acquisition. The unit soon suffered huge losses due to delays in the construction of nuclear plants. Toshiba was later forced to write down the value of its stake in Westinghouse by more than 1 trillion yen ($9 billion).

Toshiba took Westinghouse to bankruptcy court in 2017 and disposed of its entire stake to Canadian investment fund Brookfield last year.

As the owner, Toshiba was primarily responsible for disclosing problems at S&W, but the plaintiffs argue that the auditing firm was also to blame, because it condoned Toshiba's slow-walking of the disclosure of financial woes at S&W.

A shareholder damages suit as large as $9 billion is highly unusual in Japan.

The plaintiffs' original damage suit against E&Y, filed in September 2016, was a much smaller 10.5 billion yen and was related to a separate accounting issue with Toshiba -- the window-dressing of its earnings. The plaintiffs decided to include the Westinghouse case in the suit, however, raising their demand for damages to $9 billion.

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