The Washington Post
By Susan Schmidt
November 24, 1992
Ernst & Young, one of the nation's largest accounting firms, yesterday paid the federal government $400 million to settle po- tential claims arising out of its audits of more than 300 failed savings and loans, including some of the country's most notorious institutions.
The firm's settlement was second in size only to the $500 mil- lion paid earlier this year by the investment banking firm of Drexel Burnham Lambert Group Inc. and its junk bond king, Michael Milken, and underscored the government's efforts to pursue claims against lawyers, accountants and other professionals involved with failed S&Ls.
Included in yesterday's settlement were claims arising out of the failure of four of the nation's biggest and most profligate S&Ls: Charles Keating's Lincoln Savings and Loan Association of California; Western Savings Association of Phoenix; Vernon Sav- ings and Loan Association of Dallas; and Silverado Banking Savings and Loan of Denver, where President Bush's son Neil served as a director. "It's a very important step forward toward the cleanup of the thrift industry," said Harris Weinstein, general counsel of the Office of Thrift Supervision, one of the three federal banking agencies to agree to the settlement. "It estab- lishes standards for audit work that should be done at financial institutions now and in the future."
...The accounting industry has been mounting a counterattack against federal officials, seeking to place limits on damages in liability awards. Lawrence Weinbach, chairman of 
Arthur Andersen & Co., has said that the nation's biggest firms - the so-called Big Six - spent 9 percent of their revenue last year on litiga- tion.
S&L audits that were covered by yesterday's settlement were con- ducted over a seven-year period by Arthur Young and Ernst & Whin- ney, which merged in 1989 to form Ernst & Young.
In addition to the financial settlement, one current Ernst & Young partner and two former partners have been permanently barred from auditing financial institutions, and seven others must take further training before doing such audits.
...One former partner barred for life is Jack D. Atchison, who did audit work for Lincoln Savings. Within days of a 1987 audit by the accounting firm, Atchison took a job with Keating, according to testimony in an Arizona civil trial.
...According to the government, Ernst & Young's audits were inade- quate in reviewing real estate appraisals, transactions with in- siders and improper recognition of income. An example of the latter cited in the charges was the firm's alleged failure to challenge Lincoln's fictitious sale of real estate, in which the thrift would provide all the financing.
Ernst & Young initiated settlement talks with the government eight months ago, around the time a federal judge here ordered the firm to comply with an OTS subpoena and produce more than 1 million pages of documents from 20 failed S&Ls.
FDIC General Counsel Alfred J.T. Byrne said that pursuing Ernst & Young in court on substantial claims that have arisen from a dozen thrifts would have cost at least $150 million.
The FDIC's share of the recovery is $271.7 million, and the RTC's share $128.2 million."
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Everybody gets their piece. The taxpayers get the bill. Isn't it just beautiful. And the taxpayers love this family. Hehehehehe. What a deal.