NEW YORK - Hoping to avoid a lengthy retrial, Britain's Standard Chartered will next month request that the appellate court of Arizona uphold a jury verdict awarding it $338 million in compensation and $3.9 million in damages from Price Waterhouse, sources at the bank have disclosed.
Leo R. Beus, an attorney representing Standard Chartered with the Phoenix-based firm of Beus, Gilbert & Morrill, said the British bank will file a brief aimed at upholding the verdict for compensation and damages stemming from negligent auditing Standard Chartered has accused Price Waterhouse of performing at United Bank Corp. of Arizona.
Price Waterhouse, in turn, said it is planning to file a brief with the court requesting that the case be thrown out, according to a spokesman for the auditing firm in New York.
String of Suits
The case is one of largest and longest in a string of lawsuits banks and regulators have recently brought against big accounting firms for what they view as careless audits that led to large losses.
Earlier this month, Allied Irish Banks, Ireland's largest bank, obtained a $55 million out-of-court settlement from Ernst & Young, another large accounting firm.
Ernst & Young were auditors to the Insurance Corporation of Ireland, which Allied Irish acquired in 1983.
The Irish bank subsequently discovered that the insurance firm was inadequately reserved for a wide range of losses around the world.
Standard Chartered purchased the $2 billion-asset United in 1987 as part of a plan to expand its retail banking operations out of California.
The British bank paid $334 million plus $9.3 million in closing costs after Price Waterhouse gave the Arizona bank a clean bill of health.
It has also paid around $154 million on funds borrowed in 1987 to acquire United.
United subsequently ran into serious loan losses and Standard Chartered sold the Arizona bank to Citicorp in 1988 for $153 million, some $344 million less than what it cost to acquire.
Claim of Negligence
Standard Chartered first filed suit in December 1988, charging Price Waterhouse with misrepresentation and defective audit work.
"Unseasoned staff auditors did not know how to analyze a borrower's financial condition, did not know how to assess whether a loan had been properly approved and did not understand what information to enter onto the PW workpapers," Standard Chartered charged in court documents.
"Moreover, PW audit supervisors - the manager and partner - failed to critically review the information gathered by the young staff auditors or to double check its accuracy."
As a result of the accounting firm's alleged negligence, Standard Chartered charged, "loan losses totaling more than $60 million went undetected and undisclosed in 1985 and 1986. In addition, massive internal control weaknesses were never reported or revealed."
Price Waterhouse argues that it was not hired by the bank to draw up a due diligence report on United, but after an 11-month trial, an Arizona jury on May 19, 1992, returned verdicts in favor of Standard Chartered.
However, Maricopa County Judge John Sticht subsequently accepted Price Waterhouse's arguments that different and inconsistent forumlas were used to determine the awards to Standard Chartered and granted Price Waterhouse a retrial.
A Standard Chartered spokesman said that the bank believes it will win a new trial, but prefers to see the original verdict upheld in order to avoid the loss of additional time and expenses.
Price Waterhouse, however, said it will seek to have the entire case dismissed.
"The judge described the verdict as blatantly erroneous," said a Price Waterhouse spokesman in New York.
"We remain confident that whenever this case is resolved, it will be resolved in our favor."