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Accounting Conflict Causes Fund Liquidations

The Cornerstone fund group is liquidating its five funds because of a disagreement among accounting firms as to how to price certain defaulted municipal bonds, according to published reports.

The New York-based group had about $27 million in five bond and money-market funds before selling all of its holdings except those in the defaulted bonds, the reports say. Neither Deloitte & Touche nor Grant Thornton would certify the funds' 1999 financial statements because of those pricing issues. McGladrey & Pullen, which certified the firm's financials in 1998, would not reopen those financials and said it stands by its original determination, the reports say. Cornerstone sought a new accountant after McGladrey & Pullen sold its mutual fund accounting operation to PricewaterhouseCoopers.

Because the pricing conflict could not be resolved, the Cornerstone fund directors decided that "the only course of action appeared to be to liquidate the funds," said Barry Barbash, according to the published reports. Barbash, a partner with Shearman & Sterling, has been hired by the funds' independent directors.