(Corrects headline and paragraphs 1 and 11 to refer to KPMG partners, not KPMG PLT)

By Rozanna Latiff and Liz Lee

KUALA LUMPUR (Reuters) -Malaysia’s government and state fund 1Malaysia Development Berhad (1MDB) are seeking over $5.6 billion in damages from KPMG partners for alleged breaches and negligence linked to a corruption scandal at the fund, court documents seen by Reuters showed.

Audit firm KPMG on Friday denied the allegations and pledged to “vigorously” contest the suit filed against 44 current and former partners and linked to its audit of 1MDB’s financial statements between 2010 to 2012.

The suit, which the finance ministry confirmed had been filed on Tuesday, is the latest in a series of suits filed by Malaysian authorities to recover billions of dollars missing from 1MDB in a scandal that has implicated high-level officials, banks and financial institutions around the world.

“All allegations as reported in the news are refuted and the claim will be vigorously contested,” KPMG said in an emailed statement to Reuters, noting it was “disappointed” with the suit.

Malaysia’s finance ministry declined to comment further due to sub judice. In June, it said it was negotiating a settlement with the auditor.

Lawyers for 1MDB did not immediately respond to a request for comment.

According to the lawsuit, the plaintiffs allege that about $3.2 billion were misappropriated from 1MDB and its subsidiaries during the period KPMG served as the firm’s auditor.

The amount was part of a larger sum of $5.64 billion allegedly siphoned from 1MDB between 2009 and 2014 – losses that could have been avoided if KPMG had obtained sufficient evidence to support its audit findings, the plaintiffs allege.

A proper audit by KPMG would have identified fraud risk warning signs which the firm would have had a duty to report and which would have led to the discovery of the fraud at 1MDB sooner, the plaintiffs said.

The plaintiffs said they would seek the full amount misappropriated, including interest accrued as well as additional costs.

The Malaysian government and MoF Inc, a statutory body under the finance ministry, would also seek 2.63 billion ringgit ($627.83 million) from the KPMG partners to cover losses incurred in bailing out 1MDB.

KPMG was sacked as 1MDB’s auditor after it refused to sign off on the fund’s 2013 accounts.

In June 2018, it said it had informed 1MDB to “immediately take all necessary steps to prevent any further or future reliance on the audit reports prepared by KPMG Malaysia for the financial years ended 31 March 2010 to 31 March 2012”.

Deloitte PLT which took over as 1MDB’s auditor after KPMG, paid $80 million to Malaysia’s government last month to settle claims related to its dealings with 1MDB.

At least six countries have opened investigations into 1MDB, co-founded by former prime minister Najib Razak.

Last year, Najib was found guilty of corruption and money laundering in a 1MDB-linked case. He denies wrongdoing and is appealing the verdict.

($1 = 4.1890 ringgit)

(Reporting by Liz Lee and Rozanna LatiffEditing by Ed Davies, Martin Petty)

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