Judge 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.