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Local Lawsuit

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Question #1 - Summarize the actions that lead to the lawsuit. In the suit Board of Trustees of Community College District No. 508 v. Coopers & Lybrand, the Board filed suit due to Cooper’s failure to report discrepancies and inappropriate investments by the Treasurer and Chief Financial Officer Phillip R. Luhmann. According to Kilbride (2003,
p.1), “in 1988, 1990, and 1992, the Board Adopted Resolutions authorizing its treasurer to invest
City Colleges’ funds only in instruments permitted by the Public Funs Investment Act
(Investment Act) (30ILCS 235/1 et seq, (West 2002).” It further implies that “the resolutions provided that the funds should be invested only in securities guaranteed as to payment of principal and interest by the full faith and credit of the United States of America.” (Kilbride,
2003) Before funds were needed, the securities were required to mature to minimize interest risk rating. Despite these rules, Mr. Luhmann invested funds in unauthorized securities. He continuously proceeded with these investments known as “pairing off”.” (Kilbride, 2003) In other words, he purchased a security and sold it as profit before payment was required. From 1991 until 1993,
Mr. Luhmann invested funds, violating regulations of the Investment Act. From 1991 until
1992, Arthur Andersen’s accounting firm audited City Colleges’ financial statements. Coopers
& Lybrand’s accounting firm audited City Colleges’financial statements in 1993. In 1994, Ron
Gidwitz, Board Chairman, learned that Mr. Luhmann violated investment regulations and declared a financial emergency and proceeded to file a lawsuit against Coopers & Lybrand
L.L.P. Andersen’s firm reviewed the financial statements during the time period in question. A settlement was later reached with the accounting firm. Being the same…...

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