Auditor EY sued for $2.6 billion in damages by UAE hospital operator NMC

The National

19-05-2025

Auditors at EY failed to notice accounting fraud at NMC in the seven years they were working for the UAE-based healthcare company, an English court has been told. NMC collapsed in 2020 as a result of $4bn of hidden debt and its administrators Alvarez & Marsal said EY was negligent in failing to assure proper access to the company's books, thus missing billions in unreported borrowing as part of a 'massive fraud'. Creditors are seeking to recover about $2.6 billion from EY in damages for their losses as a result of the collapse, which led to NMC being placed in administration. EY, one of the world's Big Four auditors, denies the negligence allegation. The firm said that NMC's senior personnel were responsible for the fraud and manipulated its accounts, which was hidden from auditors. The Commercial Court in London has now begun hearing the case and legal submissions by NMC allege the company was the victim of a large scale fraud carried out by its principal shareholders, BR Shetty, Saeed bin Butti Al Qebaisi and Khalifa bin Butti Almuhairi. NMC said that EY is guilty of 'negligence of the most fundamental order, repeated for seven audit years' and its work 'fell very far below the standards expected of a reasonably competent auditor'. Simon Salzedo KC told the court that EY's conduct is 'the most fundamentally flawed example of Big Four auditing that has disgraced a court in this jurisdiction'. He accepted that auditors giving a wrong opinion did not amount to negligence but said: 'Two wrong opinions looks very much like carelessness and to give seven in a row is rather harder to explain away.' The fraud carried out on NMC 'was not a particularly exotic one and was first and foremost an accounting fraud' which involved undisclosed borrowing, said its submission to the court. The transactions were detailed in NMC's general ledgers, which were held on an IT system called FAS but were not included in the company's published financial statements. The undisclosed borrowing and dissipations of funds were obscured from the published financial statements by the fraudsters manipulating the FAS system, which EY knew was a risk, NMC alleges. But EY were warned off looking at FAS with the excuse that this could result in the system crashing, which they 'supinely accepted'. NMC told the court that documents show even when EY 'suspected that management may have been deliberately suppressing access' it 'continued with the audits nonetheless'. 'However many individuals were involved in the fraud, it would have been brought to a swift end by EY taking the simple step of insisting on access to the group's general ledgers, under threat of refusing to issue an unqualified audit opinion,' said NMC. But NMC alleges 'EY never got that far over the course of seven audit years' and 'never even opened the books of the company'. Eventually, the fraud was uncovered when an activist investor business named Muddy Waters 'with no access to the company's financial records, perceived from a distance that NMC's financial statements were dishonestly misstated'. In its legal submission, EY argues NMC had been completely captured by those either committing or facilitating the fraud and was 'itself a principal target and victim of the fraud'. Everyone to whom it 'might realistically have turned for information about the finances of NMC was actually engaged in practising the wholesale deception of EY'. NMC Health was founded by Dr Shetty as New Medical Centre in Abu Dhabi in 1975. The company had grown to become a major enterprise, treating more than 8.5 million patients annually through its chain of hospitals, clinics and pharmacies. The business, which has operations in 18 countries, employs more than 2,000 doctors, 20,000 other staff members and has more than 2,200 hospital beds.