Ernst & Young in $1.6 Million Settlement Over Keating
Jul. 14, 1992
PHOENIX (AP) _ Ernst & Young agreed Tuesday to pay $1.6 million to settle state accusations the national accounting firm helped Charles Keating Jr. deceive the government about the health of his savings and loan company.
The state Board of Accounting also suspended for four years the license of Jack D. Atchison, a former Ernst & Young partner said to have helped persuade the ''Keating Five'' senators to intervene with federal regulators on Keating's behalf.
The agreement comes on top of a $63 million settlement Ernst & Young made in March in a federal civil lawsuit involving its work for Keating.
The deal with the state allows Ernst & Young to retain its license in Arizona, said state Attorney General Grant Woods.
The settlement ends a complaint by the state board that the firm failed to render independent opinions and was negligent in auditing Keating's Phoenix- based American Continental Corp.
''I hope that this settlement ... will send a message to accountants across the state that their duty to their profession is going to supersede their duty to what any particular client wants them to do,'' Woods said.
Ernst & Young's New York spokesman, Mort Meyerson, refused to comment beyond the statement: ''Regardless of facts, the powerful emotions caused by Keating and Lincoln made it important for use to settle this matter, put it behind us and move forward.''
Atchison declined to comment.
The accounting board accusations concerned audits and opinions issued from 1986 through 1988 that portrayed American Continental and its Irvine, Calif.- based subsidiary, Lincoln Savings, as profitable.
American Continental filed for bankruptcy and Lincoln was seized by federal regulators in April 1989 at a cost of $2.6 billion - the biggest taxpayer bailout yet of a savings and loan.
Keating is in prison in California on a state fraud conviction for overseeing sale of risky American Continental junk bonds to investors, many of them elderly people who lost their life's savings. The bonds were sold through Lincoln branches, allegedly with false promises they were backed by the government.
The civil lawsuit ended last week with a federal jury in Tucson awarding at least $3 billion to 20,000 investors who said Keating and his companies had cheated them on the bond sales. They accused the lawyers and accountants of helping Keating trick state and federal regulators into keeping his companies in business so the bond sales could continue.
Ernst & Young - known as Arthur Young at the time of the audits - was one of many defendants who settled during the course of the trial for a total of $250 million.
Atchison, the former partner whose license was suspended, took a job with Keating within days of the 1987 audit, according to testimony at the civil trial in Tucson. Keating topped his $220,000-a-year salary by $650,000, the plaintiffs said.
In April 1987, while Keating was feuding with thrift regulators from the Federal Home Loan Bank in San Francisco, Atchison wrote a letter to five senators who later intervened on Keating's behalf. He wrote that San Francisco auditors had taken ''unusually antagonistic positions'' toward Lincoln.
The Senate Ethics Committee found that Sens. Dennis DeConcini, D-Ariz.; and Donald W. Riegle Jr., D-Mich., ''gave the appearance of being improper'' in their dealings with Keating. It found Sens. John McCain, R-Ariz.; and John Glenn, D-Ohio., ''exercised poor judgment.'' Sen. Alan Cranston, D-Calif., received a sterner reprimand.