By Adam Klasfeld From Courthouse News Service

MANHATTAN (CN) – Big Four auditors KPMG and PricewaterhouseCoopers can shield documents sought by an investment fund for sprawling litigation related to the fall of two powerful Saudi conglomerates in 2009, the Second Circuit ruled.

The ruling deprives the New York-based firm Fortress Investment Group of ammunition it wanted for legal battles in England, Bahrain, the Cayman Islands and Saudi Arabia as the fallout of 6-year-old scandal still sizzles.

Fortress’ funds held roughly $380 million in interests in two Saudi conglomerates once worth several billions of dollars: the Saad Group and Ahmad Hamad Algosaibi & Brothers (AHAB) Co.

The largest of these interests included a $129 million interest representing a 20 percent stake in Saad’s Golden Belt sukuk, the Arabic word for a corporate bond compliant with Islamic law.

In 2009, Saad’s billionaire owner Maan Al Sanea was accused of a colossal fraud and embezzlement scandal that was discovered after AHAB reported financial problems leading to its default.

This set off “one of the largest corporate collapses of the credit crunch and the messiest of the numerous debt crises to afflict family conglomerates in the Middle East,” The Economist reported earlier this year.

The “Saudi saga,” in the magazine’s words, continues to inspire global litigation that remains “little noticed by the international media.”

One of those battles unfolded in the Southern District of New York last year, where Fortress’ funds sued KPMG and PwC for information that they hoped could help them.

The funds claimed to be “interested parties” in legal proceedings in Bahrain and the Cayman Islands, where Saad and AHAB’s affiliates were being liquidated.

In England, the funds planned to bring breach of contract and tort claims “against those responsible for the faulty financial reports that misled investors into purchasing interests” in the Golden Belt sukuk.

They also hoped take on Saad and AHAB directly before a quasi-judicial Saudi tribunal.

U.S. District Judge Naomi Reice Buchwald splashed cold water on those ambitions last year.

Letting the auditors shield their documents, Buchwald said the funds had not shown that KPMG and PwC held the documents locally, rather than in their subsidiary firms in Dubai, Saudi Arabia and Egypt.

Buchwald also found that the funds fell short of being “interested parties” under the statute because they could not prove that their planned litigation was plausible.

A unanimous three-judge panel upheld those findings on appeal on Thursday.

U.S. Circuit Judge Gerard Lynch, writing for the panel, said that the funds had not shown the lawsuit to by anything “more than just a twinkle in counsel’s eye” when it brought the discovery action last year.

At oral arguments in June, the funds’ lawyer “informed the court that the action in English court had finally been commence,” according to the opinion.

The ruling is silent on the nature and the parties to that action.

But the funds needed to show that it could use the information for the English case “at the time the evidence [was] sought,” Lynch wrote.

The funds’ lawyer David Torsborg, from Jones Day, declined to comment, as did KPMG. PwC did not immediately respond to press inquiries.

For more on this story go to: http://www.courthousenews.com/2015/08/21/in-saudi-saga-big-four-auditors-safe-from-funds.htm

IMAGE: Mr Maan Al-Sanea of the Saad Group www.telegraph.co.uk