Looks like Anderson is going down ...
Sun, 17 Mar 2002 11:01:43 -0400
Some more (not-so) ancient history. I noticed in the original article that
most of Andersen's clients are going to Ernst & Young. Here's a piece about
what an honest, upstanding accounting firm they are. Especially interesting
because the settlement, and the consent decree, seemed to short-curcuit
government focus on "the appropriate behavior of professionals such as
lawyers and accountants"
Again its the same MO as Enron/Andersen - assign blame, pay the fines,
prevent any regulation, ...wait... and then business as usual - except now
you need even more financial manipulation to recover the fines and the lost
Accounting Firm to Pay U.S. Record Fine over S&L Failures
By Robert A. Rosenblatt
Los Angeles Times
Ernst & Young, one of the nation's Big Six accounting firms, paid the
federal government Monday a record $400 million to settle claims that the
company's auditors failed to warn of disastrous financial problems that
caused some of the nation's biggest thrift failures.
The staggering settlement, with $300 million coming from insurance and $100
million from the firm's partners, represented the largest financial victory
by the government against the professional auditors and accountants who
contributed to the thrift crisis, regulators said.
Ernst & Young was the auditor at institutions involved in some of the most
publicized and costly savings and loan association collapses, including
Lincoln Savings & Loan of Irvine, Calif.; Silverado Banking Savings and Loan
of Denver; Vernon Savings of Dallas, and Western Savings of Phoenix.
If Ernst & Young hadn't settled, the government would have filed legal
actions for at least $1 billion, involving alleged misdeeds at 12
institutions, Harris Weinstein, counsel for the Office of Thrift
Supervision, told a news conference.
"We consider this a very important step forward to completing the clean-up
of the thrift industry," Weinstein said. "This establishes a standard for
now and the future to govern the audit of depository institutions."
The government has collected larger civil settlements, $600 million from
junk-bond king Michael Milken, who pleaded guilty to securities law
violations, and $500 million from his former firm, the defunct Drexel,
But Monday's unprecedented Ernst & Young payment to the government focused
on a special issue, the appropriate behavior of professionals such as
lawyers and accountants whose clients became enmeshed in the financial
scandals of the past decade that brought down hundreds of thrifts and banks.
Federal financial regulators claimed that many lawyers and accountants
ignored laws and rules as well as ethical standards in their work at the
failed thrifts and banks.
Ernst & Young audited more than 300 banks and thrifts during the 1980s, and
40 failed institutions were the subject of close scrutiny by government
The charges against Ernst & Young included failure to make adequate
allowances for loan losses, improper accounting for mergers, improper
counting of income from phony sales, and failure to disclose dubious deals
between the S&Ls and some major customers. At Lincoln, for example, Ernst &
Young "failed to challenge Lincoln's fictitious sales of real estate, which
were used to inflate Lincoln's profits," according to the OTS.
In an aggressive campaign against accountants and lawyers, the federal
regulatory agencies have been following a theme suggested by U.S. District
Court Judge Stanley Sporkin, who said in an opinion in a 1990 case involving
Lincoln Savings, "Where ... were the outside accountants and attorneys ...?
What is difficult to understand is that, with all the professional talent
involved (both accounting and legal) why at least one professional would not
have blown the whistle."
The previous record settlement for professional firms was a $41 million
agreement earlier this year by the OTS with the New York law firm of Kaye,
Scholer, Fierman Hays & Handler.
Ernst & Young said Monday that it decided to settle the claims rather than
face years of legal battles.
"Although this is a costly settlement, it is the only realistic solution to
an endless stream of lawsuits that would have been even more expensive to
defend," said Ray J. Groves, the company's chairman.
The $300 million form insurance proceeds would be covered by syndicates
associated with Lloyd's of London, according to regulators. Groves said that
the other $100 million would come from the company's operations, $25 million
a year for the next four years. This would not have a "significant" impact
on the yearly earnings of the company's partners, according to Groves.
The settlement was announced jointly by the OTS, which supervises thrifts,
the Federal Deposit Insurance Corp., a bank regulatory agency, and the
Resolution Trust Corp, the agency handling the disposal of more than 700
The cost to the taxpayers from the failures of thrifts handled by Ernst &
Young will run to billions of dollars. The government's decision to settle
was based on a calculation of the insurance coverage, the assets of the firm
and its partners, and the potential cost of fighting the firm in court,
according to Weinstein of the OTS.
In Monday's settlement, the firm accepted a consent order, neither admitting
or denying the allegations of improper auditing practices. Former partners
Jack Atchison and Edward F. Flaherty and current partner George Derr signed
consent decrees prohibiting them from working for government insured banks
and thrifts. Six current partners and one former partners signed decrees
requiring them to take additional professional training.