A bankruptcy court report has alleged that Heller Ehrman last year distributed $9m (£5.5m) in profits that the now-defunct firm did not have.

According to the interim status report, in early 2008, someone at Heller instructed its accounting department to distribute the $9m and then cover it up.

In addition, in late 2007 Heller printed 118 cheques made out for $3m (£1.8m) in total to pay for expenses. The firm then placed a hold on the cheques and did not let them clear until early 2008, the report says.

The information is the result of investigations by the creditors committee. The report indicates it believes Heller's management was making these "very troubling business decisions" to boost its 2007 numbers.

"Whatever the rationale, the reality was that Heller boosted its 2007 financial numbers at the expense of the 2008 numbers, even though 2008 looked to be an even worse year for the firm's revenues," the report says.

The $9m in overstated profits was originally recorded as "excess distributions," but the accounting department was told to record them instead as "shareholder loans," the report says.

It is unclear whether shareholders knew these were loans or not.

When an accountant tried to inform shareholders in writing of the 'loans', he was told not to, the report alleges. Bank of America believes Heller never intended to collect on the loans, the report says.

The estate also believes its former shareholders owe it $106m (£64m) – the total that partners received as profit distributions in 2007 and 2008.

Thomas Willoughby, who represents the creditors committee, declined to say who instructed the accountants or whether the estate would target that person or people in court.

"We filed it to inform the court, the creditors, and parties in interest of the status of our investigation," Willoughby said, declining further comment because of confidentiality agreements.

This article first appeared on the Legal Pad blog on The Recorder's website.