A Seattle credit union that accounting giant Grant Thornton accused of concealing material information has agreed to pay it $700,000 in a settlement.
Chicago-based Grant Thornton had sued Seattle Telco Federal Credit Union to recover more than $2 million in legal fees the accounting firm incurred in fighting prior litigation by a Seattle Telco affiliate. The affiliate had sought to blame Grant Thornton for its 1993 failure, but a judge ruled in favor of the accounting firm in that case.
In the current lawsuit, Grant Thornton claimed that $178 million-asset Seattle Telco had concealed a crucial warning letter from federal regulators that would have affected Grant Thornton's accounting work for the affiliate.
The relationship between accounting firms and their clients is "really not a one-way street anymore," said Grant Thornton general counsel Margaret Maxwell Zagel. "Our purpose was to prove that plaintiffs really do have something to lose, to bring a little rationality into the legal system."
"I know that one of the important issues with Grant Thornton in this whole matter was to establish for the world to see that Grant Thornton is not a client that should be considered lightly when thinking of taking legal action against them," said Anthony Backes, president and chief executive of Seattle Telco. "To some extent, the point has been made."
The suit and settlement stem from the failure of CU Financial Services, a mortgage servicing company that had been majority-owned by Seattle Telco since 1991. The other owners were NW Federal Credit Union and Seattle Postal Employees Credit Union, but Grant Thornton sued only Seattle Telco.
CU Financial was liquidated in the summer of 1993 by its three owners after suffering heavy losses during the year.
Seeking to recoup some of the losses, CU Financial and the credit unions sued Grant Thornton for more than $10 million in damages, accusing the accounting firm of negligence and misrepresenting the financial condition of CU in its audits. Grant Thornton had been hired to audit CU's financial statements from fiscal 1990 through fiscal 1992.
But in late 1995 the judge ruled in favor of Grant Thornton, even going so far as to question the credibility of CU's witnesses and evidence.
Meanwhile, Grant Thornton had countersued, accusing Seattle Telco of lying. In particular, the accounting firm charged that Seattle Telco had hidden a June 1991 letter from the National Credit Union Administration advising the credit union that it was violating regulations by servicing mortgages for nonmembers.