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Frederick's Sues Andersen Over Breach of Contract

January 05, 2002|JOYZELLE DAVIS | BLOOMBERG NEWS

Frederick's of Hollywood Inc. sued the fifth-largest U.S. accounting firm, accusing Arthur Andersen of negligence that led the purveyor of racy lingerie to file for bankruptcy protection in 2000.

Frederick's said Andersen improperly sought to be released from any claims the retailer might have related to its auditing services.

Frederick's claims that when it refused to sign the release, Andersen quit the account without completing the 1999 audit.

Frederick's suit in Los Angeles County Superior Court claims the company couldn't get loans it needed because it lacked audit information lenders required. The lingerie seller filed Chapter 11 bankruptcy and seeks unspecified compensatory and punitive damages in the suit.

"Andersen's misleading tactics, concealment of material information and ultimate termination of all work destroyed Frederick's ability to carry on its operations," according to the professional negligence and breach-of-contract suit.

Chicago-based Andersen didn't immediately return a call for comment.

Andersen is under investigation as the auditor of Enron Corp., which last month filed the biggest bankruptcy in U.S. history after saying it overstated earnings. Andersen also has been criticized for its accounting work for Sunbeam Corp. and Waste Management Inc.

Los Angeles-based Frederick's filed for Chapter 11 in July 2000, citing a need to ease a debt load from a 1997 leveraged buyout.

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