Audit firm PricewaterhouseCoopers (PwC) has been ordered by the 2nd U.S. Circuit Court of Appeals in New York to face fraud claim over Lipper hedge fund collapse.

According to Reuters, the a federal appeals court in its verdict said a trial judge erred in dismissing a claim that PwC’s auditor opinion letters fraudulently induced the plaintiffs to invest in Lipper Convertibles.

In 2002, Lipper Convertibles was liquidated after having overstated its assets as US$722 million, which was actually US$365 million, less by 49%.

PwC, which audited the fund’s financial statements from 1996 to 2000, issued letters generally affirming their accuracy.

In their lawsuit, the investors said PwC missed "significant red flag(s)" in auditing the Lipper fund, whether knowingly or recklessly.

Daniel Krasner, a partner at Wolf Haldenstein Adler Freeman & Herz representing the investors, told Reuters that his clients are pleased with decision.