Accountants Mismanged Her Money, Rihanna Says

By MARIMER MATOS

(CN) - Pop star Rihanna claims in court that her former accountants' blatant mismanagement cost her millions on her 2009 Last Girl on Earth tour and got her audited by the IRS, while they charged "exorbitant and excessive" commissions.

Robyn Fenty aka Rihanna and her concert touring company, Tourihanna, sued Berdon LLP and its certified public accountants Michael Mitnick and Peter Gounis in federal court in Manhattan for fraud, professional negligence, breach of contract, breach of fiduciary duty, unjust enrichment.

In 2005, when she was 16, Fenty says she hired Berdon for accounting and business management services, and extended their agreement in 2007 and 2009.

She continues: "On February 1, 2010, Fenty entered into a fourth written engagement agreement with Berdon, pursuant to which defendants agreed they would provide certified public accounting and other services. In the 2010 Engagement Agreement, defendants again agreed, among other things, to review investment opportunities upon Fenty's request, to advise her of their economic and tax implications and income potential and to invest excess funds in short term securities to maximize Fenty's return on her funds.

The singer says Berdon had an unusual system of making commissions off her money, and that the accounting firm hid the true state of her finances from her in order to keep the commissions rolling in.

"Under the Engagement Agreements, defendants earned 'commissions' based on a percentage of Fenty's gross receipts. Plaintiffs are informed and believe, and on that basis allege, that this type of arrangement was not standard for the accounting and business management industry, and that defendants' 'commissions' were exorbitant and excessive. Plaintiffs are further informed and believe, and on that basis allege, that this financial arrangement motivated defendants to conceal material facts regarding plaintiffs' finances from them, in that, had they known the true facts regarding defendants' negligence and wrongful conduct, as alleged herein, plaintiffs would have terminated defendants, thereby depriving defendants of their 'commissions.' Moreover, defendants drafted the Engagement Agreements without negotiation or review of their terms, including terms governing compensation, by independent financial and legal professionals chosen by Fenty.
And the firm took on extra duties while neglecting to paint an accurate picture of her financial situation, Fenty says.

"Plaintiffs are informed and believe, and on that basis allege, that from 2005 through 2010, defendants assumed business management, accounting and advisory roles well beyond the services provided for in the written Engagement Agreements and, in providing their services to Plaintiffs, exerted substantial control over Plaintiffs' financial affairs.

"Plaintiffs are informed and believe, and on that basis allege, that in providing these services to plaintiffs, defendants failed to follow applicable industry standard accounting and business management practices, as alleged herein. In particular, plaintiffs are informed and believe, and on that basis allege, that, among other omissions and failures, defendants' recordkeeping and accounting methods failed to provide sufficient information and/or detail regarding, and/or failed entirely to account for, Plaintiffs' revenue and expenses and failed to ensure maximization of Plaintiffs' revenue and Fenty's personal net worth and long term wealth.

Berdon formed her touring company without planning for its taxes and transferred money between her companies without accounting for the transfers, Fenty claims.
"On information and belief, defendants failed to properly manage Fenty's cash flow and expenses. For example, Defendants formed various limited liability companies to manage Fenty's cash flow and expenses. Plaintiffs are informed and believe, and on that basis allege, that defendants formed these business entities, including Tourihanna, without proper consideration of tax consequences, resulting in substantial unnecessary losses to Fenty. Plaintiffs are further informed and believe, and on that basis allege, that under defendants' direction, these companies made frequent inter-company loans to pay Fenty's expenses without proper accounting.

Accountants ran up the expenses without Fenty's okay and didn't properly budget her Last Girl on Earth tour, according to the complaint.

"Defendants also failed to implement sufficient mechanisms to obtain Fenty's approval of standard or non-standard expenses on a regular basis, as required by accounting and business management industry standards. Defendants further failed to create and implement sufficient financial and cash management controls for plaintiffs, which are standard in the industry. In particular, defendants failed to ensure a proper budget was created for the Last Girl on Earth tour, failed to sufficiently monitor or minimize Tourihanna's expenses during the tour, failed to report to plaintiffs regarding Tourihanna's revenue versus expenses, and failed to reconcile tour expenses and generally put Tourihanna's books in order upon the tour's completion. As a result of defendants' gross mismanagement, plaintiffs lost millions of dollars on the Last Girl on Earth tour. Astonishingly, however, due to its improper financial arrangement with Fenty, Berdon paid itself millions of dollars in commissions for the Last Girl on Earth tour based on Fenty's gross receipts from the tour. Plaintiffs are informed and believe, and on that basis allege, that Berdon's receipt of commissions measured as a percentage of Fenty's gross receipts created a conflict of interest, in that Berdon had no incentive to counsel plaintiffs to reduce expenses, implement sufficient and appropriate financial controls, or consider net receipts, because Berdon would be paid based upon gross receipts, regardless of expenses or net receipts. Plaintiffs are further informed and believe, and on that basis allege, that Berdon was further motivated to conceal from plaintiffs the true state of their finances and Berdon's mishandling of their accounts in order to ensure Berdon's continued receipt of commissions from, and employment by, plaintiffs.

"Plaintiffs are informed and believe, and on that basis allege, that defendants failed to conduct thorough monthly planning, tracking or record-keeping with respect to Fenty's personal expenses and her business enterprises, including Tourihanna, and failed to sufficiently discuss expenses with Fenty, as required by accountants.

Source: Courthouse News Service

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