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FDIC Sues National Accounting Firm Over Butcher Bank Losses

May 20, 1987

KNOXVILLE, Tenn. (AP) _ The Federal Deposit Insurance Corp. has sued one of the nation’s largest accounting firms for $250 million, alleging it was too lax in auditing banks owned by banker Jake Butcher and his brother, C.H. Butcher Jr.

The FDIC claims in the lawsuit filed Monday that Ernst & Whinney ″departed markedly from professional standards″ in 1981 audits of four banks prior to the 1983 collapse of the Butcher brothers’ financial empire.

The FDIC said the banks were United American Bank in Knoxville, and City & County banks in Knox, Anderson and Washington counties.

Jake Butcher is serving a 20-year bank fraud sentence in connection with the failure of his banks, and C.H. Butcher Jr. awaits sentencing after pleading guilty to a series of federal fraud charges.

A spokesman at Ernst & Whinney’s Cleveland headquarters said the company would ″vigorously defend″ itself.

″Ernst & Whinney believes this suit is another example of the FDIC attempting to push off to an auditor its own regulatory obligation,″ said Donald Howarth, national director of communications.

The FDIC also says audits were not independent enough. For example, Walter Boruff, the partner in charge of the Knoxville office, had Butcher bank loans of up to $53,000, the lawsuit said.

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