KPMG's U.S. division agreed to pay $75 million to shareholders of Oxford Health Plans, Trumbull, Conn., to settle a class-action lawsuit stemming from the managed-care company's steep drop in stock price in 1997. Oxford last week agreed to pay the same set of shareholders $225 million to settle its share of the lawsuit. KPMG denied wrongdoing and said its audit team performed professionally. Major problems with a new information system hid cash-flow troubles that surfaced the third quarter of 1997, prompting Oxford to record a $78 million loss. The company's market value subsequently declined by than 80% in a three-month period. KPMG said it had no role in Oxford's quarterly reports. But shareholders took issue with KPMG's blessing of Oxford's 1996 financial statements, contending the auditors should not have endorsed the statements without qualification given the information systems problems beginning to emerge, a KPMG spokesman said.
KPMG's healthcare-related auditing also came under scrutiny in late 2001, when it settled a civil fraud lawsuit brought by the U.S. Justice Department. KPMG agreed to pay $9 million to resolve allegations that it helped six hospitals owned by Basic American Medical, which later became part of HCA. The company allegedly falsified cost reports for 1990 and 1991 and submitted false claims based on those reports from 1990 to 1993. -- by John Morrissey