by Gay MennutiJudge Orders Firm to Obey Subpoena
By Marianne Funk, Deseret News Published: May 1, 1993
Deloitte & Touche’s bid to keep certain documents from Bonneville Pacific’s trustee is causing the accounting firm embarrassment and costing a lot of money.
A federal judge chided company officials Friday for not obeying an October subpoena ordering the firm to turn over all documents relevant to the company’s audits of Bonneville Pacific.”By way of fatherly advice, I will merely observe that those who have been served with a subpoena would find it prudent – very prudent – to obey them,” U.S. District Judge Bruce Jenkins told Deloitte & Touche attorney Richard Casey.
U.S. Bankruptcy Judge John H. Allen already slapped the accounting firm with a $10,000 fine for not obeying a court order to turn the documents over.
“I think there has been a deliberate attempt by Deloitte & Touche and Deloitte & Touche’s counsel to circumvent the orders of this court,” Allen said when he fined the firm last week.
He again ordered Deloitte & Touche to promptly turn over the documents Bonneville Pacific has subpoenaed.
In addition, Allen told Deloitte & Touche it must pay Bonneville Pacific for the cost of fighting the matter in court.
“That will be several tens of thousands of dollars,” said Vernon Hopkinson, attorney for Bonneville Pacific trustee Roger Segal.
Deloitte & Touche asked Jenkins to stay Allen’s order to produce the documents but met with little sympathy.
“Frankly, I don’t know of any good reason to enter a stay. I’m going to deny your motion,” Jenkins told Casey.
Casey told Jenkins he is afraid Segal will sue Deloitte & Touche for its role in Bonneville Pacific’s alleged fraud. Several investors have accused Bonneville Pacific principals of manipulating the company into bankruptcy.
Segal has good reason to sue, said Leo Beus, attorney for Segal. Deloitte & Touche’s sloppy audits of Bonneville Pacific allowed Bonneville Pacific to deceptively raise $63 million from investors.
He outlined two deceptive transactions by Bonneville Pacific that helped the company show false profits. Thousands of investors bought stock in the company based on those false profits, he said.
The profits were crafted by funneling money to dummy companies owned by the same people who ran Bonneville Pacific, Beus told Jenkins.
But Deloitte & Touche approved the transactions without making any attempt to find out who really owned those companies, Beus said.
The named owners of a company run by former Bonneville Pacific officers allegedly bought a project from Bonneville Pacific for a $25 million, Beus told Jenkins. “In fact, all Bonneville Pacific received from that project was $1 million.”
Bonneville Pacific’s former officers crafted the deal to hide a $5 million annual loss, instead reporting a fake profit of $5.8 million that year.
Deloitte & Touche approved the fraudulent deal without even phoning someone at the company that supposedly paid the $25 million, he said.
Another transaction allowed Bonneville Pacific to show a false annual profit of $10 million instead of the company’s actual $5.3 million loss, Beus said.
“These are the earnings transactions that Deloitte & Touche looks at very hard each year,” he told Jenkins.
Segal wants all Deloitte & Touche documents – including procedure and training manuals – relating in any way to Bonneville Pacific.
Although Deloitte & Touche has turned over some documents, all of the relevant parts have been whited out, Beus said.
Casey urged Jenkins not to order them to turn over the information because Bonneville Pacific clearly wants to sue Deloitte & Touche.
“Mr. Beus is well noted for the success he’s had in suing accounting firms,” Casey said.
by Gay MennutiA $128.1 Million Settlement Reached In Miniscribe Case
By The New York Times Published: June 4, 1992
Former executives, accountants and investment bankers involved with the Miniscribe Corporation, the defunct disk drive maker, have agreed to pay $128.1 million to settle fraud charges.
Greg Ruegsegger, the lawyer representing Miniscribe’s trustees, said Tuesday that he had reached an agreement in principle with more than 60 plaintiffs involved in the suits.
The settlement must be approved by a Federal judge in Denver and the United States bankruptcy judge overseeing Miniscribe’s liquidation.
In addition to Miniscribe management, defendants include the accounting firm Coopers & Lybrand, and the investment banking concern Hambrecht & Quist, among others.
They were accused of falsifying Miniscribe’s financial records and concealing the Longmont-based company’s sagging revenues throughout the late 1980s.
Miniscribe filed for protection from its creditors under Chapter 11 of the Federal Bankruptcy Code in January 1990. But the fraud allegations made it impossible to reorganize the company and the case was converted to a liquidation. Miniscribe’s assets were auctioned off to the Maxtor Corporation of San Jose, Calif.
“We’re hopeful we’ll get the settlement finalized and don’t expect any problems,” Mr. Ruegsegger said. “We think it’s a good settlement and a good deal for the estate.”
Plaintiffs including shareholders and creditors were seeking damages up to $1 billion. The company’s estate will pay off creditors in the bankruptcy proceedings as well as make cash settlements to shareholders.
The suit charged that former executives counted more than 6,000 contaminated disk drives as inventory and also packaged bricks as computer products and shipped them to distributors, recording sales of $4.3 million.
The settlement comes four months after a jury in Galveston, Tex. awarded $568 million to a group of investors and pension funds that put money into Miniscribe before the allegations arose. Coopers & Lybrand has agreed to pay up to $50 million to settle the Texas case; it is believed that Hambrecht & Quist will pay up to $24 million to settle the Denver case, according to a report in The Wall Street Journal. The investment firm already agreed to pay $30 million to settle the Texas case.
The paper said that to settle the Denver case, the defendants will pay a third of the settlement this year and the remainder over four years.
by Gay MennutiAccountant Hit With Judgment of $338 Million
By The Associated Press, Los Angeles Times Published: May 20, 1992
An Arizona Jury Says a Price Waterhouse Audit Led to a British Firm Making a Losing Investment in a Bank
PHOENIX — A state jury on Tuesday told Price Waterhouse to pay $338 million to a British banking firm because the accounting firm’s audit led to a losing investment in an Arizona bank.
The jury agreed with London-based Standard Chartered that Price Waterhouse bungled its audit of United Bank in 1985 and 1986. The British company had alleged in a Maricopa County Superior Court lawsuit that Price Waterhouse failed to alert the firm to bad loans on the bank’s books and grossly overstated its financial condition.
New York-based Price Waterhouse is one of the nation’s largest accounting firms.
Standard Chartered bought United Bank in January, 1987, for about $335 million and sold it 16 months later to Citicorp for about $208 million–a $127-million loss.
The eight-person jury found that Price Waterhouse engaged in negligent misrepresentation and breach of fiduciary duty in working for Standard Chartered.
The jury decided to award the banking company roughly the amount it paid for United Bank.
Erica B. Baird, spokeswoman for Price Waterhouse in New York, said the firm was outraged at the verdict and will appeal directly to the judge to dismiss the award.
She said the firm has a contingency plan to limit the effect of the award.
“We have insurance, and service to clients won’t be interrupted,” she said. “We are confident we can get the judgment stayed pending the appeal.”
She said the firm was relieved that the jury didn’t find that it had violated the Arizona Civil Racketeering Act, which would have allowed the damages to be tripled to more than $1 billion.
Leo Beus, attorney for Standard Chartered, said he was pleased with the verdict despite failing to get triple damages.
“This sends a signal not to trust auditors,” Beus said. “The jury wanted very badly to decide for Price Waterhouse, but they just couldn’t. The jury was very patient.”
The trial, which began in June of last year, was the longest civil trial in the state’s history, court officials said.
Beus said it was Arizona’s biggest civil award ever. Mary Budinger, spokeswoman for Maricopa County Superior Court, said the court doesn’t keep such records.
Baird, Price Waterhouse’s spokeswoman, said that the auditing firm was being made a scapegoat for a bad business decision by Standard Chartered and that the trial was bent in favor of the plaintiffs.
“This is an 11-month trial,” she said. “In the 11 months, Price Waterhouse was given 25 days to present its case.”