Audit in the Hot seat?


This past week the parent of the  rental company Hertz, filed a law suit against the forensic research firm, Audit Integrity for defamation over a report which suggested the car rental company could go bankrupt. Audit Integrity, is an independent research  firm that utilizes forensic approaches using a quantitative analytical process to find trouble companies. This past September, they announced a new model which is specifically designed for sniffing out firms that have a high probability of bankruptcy. Audit Integrity included Hertz in a Sept. 15 report listing 20 large corporations that it considered at risk of bankruptcy.

“Audit Integrity is spreading misinformation about our financial health and the quality of our financial reporting,” said Richard Broome, a Hertz spokesman. “We felt the situation was so unfair that the lawsuit was warranted.”

This suit however come after Hertz admitted to severe financial risks in their most recent 10-K statements which stated,

If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay capital expenditures, sell assets, seek to obtain additional equity capital or restructure our indebtedness. In the future, our cash flows and capital resources may not be sufficient for payments of interest on and principal of our debt, and such alternative measures may not be successful and may not permit us to meet scheduled debt service obligations.

Nevertheless Hertz’s chief executive, Mark Frissora called the suit “an appropriate response to the publication of false and harmful information”  and is seeking financial damages, an apology and retraction and a court injunction barring Audit Integrity from making “further defamatory statements.”

“Not only are the conclusions about our financial health baseless, but questioning the integrity of our financial reporting is indefensible,” Frissora stated.

Audit Integrity’s Chief Executive Jack Zwingli said in a statement,”We are disappointed that Hertz has taken this action in an attempt to stifle an opinion they do not agree with. We firmly stand behind our methodology and findings, and will vigorously defend ourselves against this unwarranted litigation.”

Audit is not the first amongst it peers to face legal conflict because of reports. Forensic firm Gradient Analytics was sued in 2005 for allegedly publishing negative research on the firm causing the  stock price to drop. Three years later dropped a lawsuit against Gradient, which apologized for some of its reports about Overstock.


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