The liquidators of two foreign investment firms that were found to be insolvent after jailed fraudster Bernie Madoff's Ponzi scheme was discovered are suing accountants in Ireland who audited their books for two years.

In High Court proceedings, it is claimed Deloitte failed to conduct the audits in accordance with proper standards.

British Virgin Islands registered mutual fund Mount Capital Fund Ltd (MCF), and its subsidiary Mount Capital Asset Subsidiary Ltd (MCAS) were found to be insolvent after the Ponzi scheme was revealed, it is claimed.

Investments in MCF were, in turn, invested in MCAS after which a third party investment manager directed the investment strategy that placed funds in Bernard L Madoff Investment Securities LLC.

Madoff’s firm had engaged in a $65 billion (€57.5 billion) Ponzi-type investment scam that evaded detection for decades.

After Madoff was jailed in the United States for 150 years in June 2009, MCF and MCAS were liquidated in the British Virgin Islands (BVI) in September 2009.

In 2013, BVI joint liquidators Hadley Chilton and John Greenwood sued Deloitte here over its role as auditor of the firms in 2006 and 2007. It is claimed, among other things, the defendant failed to allocate sufficient resources to each audit.

It allegedly failed to detect that the principal asset of MCAS – with a stated value of €263 million in 2006 and €393 million in 2007 – did not exist or did not exist in those amounts.

Each audit

It is also claimed the defendant failed to apply a properly considered approach to each audit and failed to consider and evaluate the extent to which information produced by the Madoff company could be relied upon. It is claimed the records prepared by the Madoff firm could not, on their own, properly constitute an independent source of evidence for audit purposes.

It is further claimed there was failure to test a sample of alleged purchase and sales of securities and equities and/or alleged dividend income. MCAS’ assets comprised US treasury bills, it is alleged.

Deloitte denies the claims.

Two categories

A dispute between the parties over discovery of documents in advance of the trial came before Mr Justice Charles Meenan on Tuesday. The judge directed the defendant make discovery in relation to two categories of documents from the audit file.

He also directed the plaintiffs also make discovery in relation to two categories of documents.

The full case will be heard later.