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The region’s largest accounting firm, Moss Adams, is locked in a legal fight over its role in the region’s largest Ponzi scheme — and the battle took an odd new twist this month in court.

The lawyer suing Moss Adams told Bankruptcy Court Judge Karen Overstreet that the CPA firm’s executives had long withheld “smoking-gun emails,” showing they knew one of its employees had a romantic relationship with Meridian founder Frederick Darren Berg.

“The auditor cannot be, if you will, in bed figuratively or literally with the client,” attorney Michael Avenatti told the court, according to an audio recording of the Nov. 9 hearing. He said such a relationship “would absolutely violate the most basic premise of auditing.”

Avenatti represents liquidating trustee Mark Calvert in a $150 million lawsuit alleging Moss Adams’ negligence in auditing some Meridian funds caused investors to lose millions. The hearing centered on his assertion that Moss Adams has been slow to turn over documents the trustee subpoenaed two years ago.

In an interview, he reiterated his claim that “it is a smoking gun because it shows that Moss Adams had a lack of independence and then lied about it.”

Even Judge Overstreet said those emails, labeled Exhibit O, concerned her the most.

“I received hundreds of pages of documents and the only thing I printed was Exhibit O,” she told the lawyers.

The boyfriend at the center of the allegations, however, says the idea that he had any impact on Moss Adams’ audits of Meridian is “comical.”

The onetime Moss Adams employee, Dan Matthias, says his involvement with Berg began only in mid-2010, after he’d already left Moss Adams.

By then the Meridian Ponzi scheme was already coming apart; it was years after Berg had begun diverting more than $100 million in investor money, according to his guilty plea.

Matthias said in an interview that he worked at Moss Adams for two years, beginning in September 2007, as a young staff auditor.

“My clients were all SEC-reporting firms — tech and life-science firms,” he said. “I never did any substantive work on any of the Meridian companies.”

The 28-year-old said his relationship with Berg lasted about six months, ending after Berg’s arrest in October 2010. Although he’d met Berg in Seattle before starting work at Moss Adams, they “ran in different circles” at that time, he said.

Matthias, who now runs a bar in West Hollywood, Calif., says it’s far-fetched to suggest he could have influenced the audit work of more senior people in a different part of the CPA firm.

“I could probably write a book if it were true, but it’s not,” he said.

Moss Adams audited some of Meridian’s investment funds beginning in 1999, and as late as 2008, according to court records. The trustee has argued the Ponzi scheme began as early as 2001, as Berg channeled investors’ money into unrelated businesses and his highflying lifestyle.

Berg, responding to questions from The Seattle Times in an email from federal prison in Lompoc, Calif., called Matthias “a wonderful young man who had nothing whatsoever to do with Meridian either before, during or after its failure.”

Kelly Corr, an attorney defending Moss Adams against the Meridian trustee’s lawsuit, said Matthias may have done “about two hours of largely clerical work” on one Meridian audit — “probably less than one-tenth of 1 percent of the time” that Moss Adams personnel spent on auditing Meridian.

“If plaintiffs are trying to make some big issue out of this, they are just grasping at straws,” Corr said.

Moss Adams says it has turned over more than 17,000 pages of documents. Avenatti says some key papers the trustee is entitled to see still have not been disclosed.

The email string relating to Berg’s relationship dates to July 2010 — weeks after the Meridian Mortgage empire began to unravel, and several months before Meridian founder Berg was first charged with the fraud that landed him an 18-year prison sentence.

One email, from Moss Adams partner Gary Grimstad, tells a leading Meridian investor, Craig Edwards, that “we are not aware of any relationship between our staff and Darren.”

But the next day an email from Grimstad informs another Moss Adams partner that Edwards “called looking for the name of the employee which I did not give him. … He claims that the reason it came up was because the Moss Adams person who was involved with Darren was part of the audit team.”

Avenatti told the judge that the email “shows they knew exactly what Mr. Edwards was talking about. There is such an employee, but they weren’t going to give Mr. Edwards the name.”

And when the trustee subpoenaed all Meridian-related documents just a few weeks later, “These emails were fresh off the wire, and they weren’t produced,” Avenatti said.

Overstreet wrapped up the Nov. 9 hearing by asking Moss Adams to explain under oath why the documents weren’t disclosed earlier. She told trustee Calvert’s attorney to detail what penalty he would propose if she decides to punish Moss Adams for the delayed disclosures.

The shoe was on the other foot in King County Superior Court, where Calvert’s suit against Moss Adams initially was filed. Moss Adams won an $80,000 sanction against Calvert when Superior Court Judge Catherine Shaffer accepted the CPA firm’s argument that the trustee didn’t follow her order to detail which investors put money into each of Meridian’s funds, and how they allegedly relied on Moss Adams’s audits.

Next month, in a follow-up hearing in bankruptcy court, the trustee’s attorney will seek to even the score.

Comments? Rami Grunbaum: 206-464-8541 or