City Sues ESM Auditor
City Sues ESM Auditor
Mar. 27, 1985
POMPANO BEACH, Fla. (AP) _ A day after liquidation proceeding were begun for the collapsed ESM Government Securities Inc., city commissioners voted Wednesday to sue their auditing firm to try to recover almost $12 million invested with ESM.
The suit will charge the auditing firm of Alexander Grant and Co. with negligence and fraud for telling them that ESM was solvent.
Based on an audit, the city said it invested $11.9 million in ESM, which the Securities and Exchange Commission closed on March 4.
The court-appointed receiver for ESM filed a Chapter 7 petition Tuesday seeking the liquidation of ESM under federal bankruptcy laws, permitting creditors to seize at least $2 million.
ESM owes about $320 million two dozen creditors, including 16 cities and six savings and loan institutions, according to the receiver, Miami lawyer Thomas Tew. But he says he has accounted for only 10 percent of the money.
ESM's collapse led to the financial crisis for 70 privately insured savings and loan associations in Ohio. The S&Ls were order closed temporarily by the governor because of runs on deposits trigged by the collapse of Home State Savings Bank of Cincinnati, which suffered big losses from ESM's failure.
Pompano Beach's suit will allege that Alexander Grant auditors took part in a civil conspiracy with ESM to file fraudulent financial statements.
The fraud part of the suit stems from SEC civil charges that Jose Gomez, the managing partner of Alexander Grant's Miami office, received $125,000 from ESM, compromising his position as an independent auditor of the securities firm.
Linda Conahan, who represents Pompano Beach, also contended the auditors did not use accepted practices in reviewing ESM records.
Because of the lawsuit, Burton Emmer, a partner in Alexander Grant, withdrew from his post as Pompano Beach's auditor, refusing to discuss either the suit or ESM.
Tew filed the liquidation petition for ESM at an emergency hearing Tuesday in West Palm Beach. Chapter 7 provides for selling off a company's assets and dividing the receipts among creditors.
Creditors sought the hearing so they could seize $2 million in ''preferential transfers'' - money paid to insiders - made March 26, 1984. U.S. bankruptcy laws allow a trustee to retrieve up to 1-year-old transfers.
Tew's motion was approved by U.S. District Judge James C. Paine in West Palm Beach because the judge who had been handling the case in Fort Lauderdale was unavailable.
Meanwhile in Tampa, State Comptroller Gerald Lewis said his Department of Banking and Finance needed more power to punish securities companies that refuse to provide information subpoenaed by the state.
He said ESM apparently ''falsified accounting records ... to deceive not only representatives of my office but local and federal officials as well as other regulatory agencies.''