Bain alleges that it invested around $60 million in Lilliput in May 2010 for a non-controlling 30.99 percent stake, based on false financial statements that EY, previously known as Ernst & Young, had audited and certified, according to a copy of the lawsuit seen by Reuters.
Bain and 10 other subsidiaries of the global private equity firm have sued Ernst & Young Global Limited and Ernst & Young LLP in a Massachusetts court, claiming that the investment is now "rendered worthless", according to the suit.
An external spokeswoman for Bain declined to comment on the lawsuit.
"These allegations of wrongdoing are baseless and EY will vigorously defend this matter," EY said in a statement.
Bain invested in Lilliput in 2010 and planned to expand the company before taking it to an initial public offering.
Reuters reported in 2012 that Bain was alerted to problems with the accounts at Lilliput via a call from a whistleblower, soon after an initial public offering for the company was approved.
Bain halted the Lilliput IPO process after investigating the whistleblower's claims and finding inflated sales at the company, according to the suit.
The suit alleges that Bain, which has a longstanding global relationship with EY, was specifically targeted by EY to invest in Lilliput because the Boston-based firm had the resources to pay a higher investment price and the prestige and knowledge to take the company to an initial public offering.
The suit also alleges that Bain invested in Lilliput because it relied on false financial statements and EY's false audit opinions, and that EY continued to certify Lilliput financial statements "even as Lilliput's fraud grew with EY's active assistance", according to a copy of the complaint filed with the Suffolk County Court, obtained by Reuters.
Bain is bringing the action against EY for "fraud, aiding and abetting fraud, negligent misrepresentation, and unfair and deceptive trade practices based on EY's involvement in the scheme to defraud Bain."