Ernst & Young Accused of Helping Brooge Defraud SPAC Investors

Ernst & Young LLP helped Brooge Petroleum and Gas Investment Company FZE fraudulently entice investors into taking part in a merger transaction, a lawsuit filed in federal court says.

EY played a “pivotal role” in Brooge’s scheme to defraud the investors in a 2019 special purpose acquisition company merger, the complaint filed Tuesday in the US District Court for the Southern District of New York says. A SPAC is a “publicly-traded shell corporation created to raise capital through an initial public offering (“IPO”) with the sole purpose of acquiring or merging with a private company,” the complaint says.

Brooge is an oil-storage leasing company in the United Arab Emirates, the complaint says. In 2018, “a group of investors in a NASDAQ-listed SPAC—including Plaintiffs—was introduced to Brooge, and the parties executed a merger agreement in anticipation of a planned December 2019 merger between Brooge and the SPAC,” it says.

But the financial picture painted by Brooge was a fraud, the complaint says. Brooge used fake invoices, fake customers, and affiliated parties to fabricate between 30% and 80% of its 2018, 2019, and 2020 revenues, it says.

Brooge couldn’t have effectuated its scheme “without critical support from Ernst & Young,” the complaint says. EY aided Brooge’s scheme by helping devise a way to explain the payments from affiliated parties and the corresponding lack of payments from its sole customer, it says.

EY “blessed the scheme by issuing unqualified audit opinions which falsely stated,” that Brooge’s financial statements accurately reflected the company’s financial position.

Using the inflated numbers, Brooge persuaded the investors to exchange their securities for Brooge’s securities in a transaction valued at over $1 billion on NASDAQ, the complaint says. But after the Securities and Exchange Commission investigated Brooge and announced fraud charges against it in 2023, its share price tumbled and the plaintiffs lost “virtually the entire value of their investment,” it says.

The plaintiffs accuse EY of fraud and violations of the Securities Exchange Act. They seek compensatory and punitive damages along with pre- and post-judgment interest, attorneys’ fees, and costs.

EY didn’t immediately respond to a request for comment.

The Aegis Law Group LLP represents the plaintiffs.

The case is Anvil Trust v. Ernst & Young, S.D.N.Y., No. 1:24-cv-09731, complaint filed 12/17/24.