Peat Marwick to Settle Thrift Case for $9.25 Million

The national accounting firm of Peat Marwick Main & Co. has agreed to pay $9.25 million to settle claims arising from the state’s 1984 closure of the Western Community MoneyCenter in Walnut Creek, Calif.

Seven months after the state seized control of the insolvent thrift association, the Department of Corporations and MoneyCenter’s 12,500 thriftholders sued Peat Marwick for allegedly mishandling the 1982 audit of MoneyCenter. The suit alleged that Peat Marwick’s audit allowed the MoneyCenter to show a profit when in fact, it had experienced losses, according to Donald R. Querio, a San Francisco attorney who represented the state in the case.

A spokeswoman for Peat Marwick said the company would have no comment on the settlement. According to court records, Peat Marwick continually asserted that its audit complied with applicable auditing standards and alleged in a cross-complaint filed against the state that the Department of Corporations had failed to properly regulate MoneyCenter.

The Western Community MoneyCenter was chartered as a thrift and loan association in the early 1980s. Thrift associations are small consumer banks that specialize in making short-term, high-interest loans for automobiles, boats and real estate. The MoneyCenter had several branches in Northern California and one in Fullerton, according to Querio.

“There were a number of problems involving mismanagement,” Querio said. “There were insufficient controls over the types of loans made, bad loans made and commingling of loans,” he said.

The MoneyCenter had $99 million in deposits and was the first California thrift to fail in 10 years when the state seized the MoneyCenter and declared it insolvent on April 20, 1984.

The accounts had been guaranteed up to $50,000 each by the state’s Thrift Guaranty Corp., a private company created by the state and supervised by the Department of Corporations. But the losses exceeded the guarantees by millions of dollars, according to state officials at the time.

After the seizure, irate thriftholders launched an aggressive lobbying campaign in Sacramento, demanding payment from the state. In June, 1985, in an unusual move, the state Legislature approved a $63-million loan guarantee which enabled the Department of Corporations to borrow money and pay back MoneyCenter’s clients.

Under the terms of the settlement negotiated by Contra Costa Superior Court Judge Coleman F. Fannin, half of Peat Marwick’s settlement will be used to pay off the balance of the state-guaranteed loan.

The rest will be used to pay the interest accrued on the MoneyCenter accounts after the company was seized and ordered liquidated by the state, Querio said.

He said it will take about three to four months for the court to approve the details of the final settlement. He said payments made previously by Peat Marwick brings the total settlement to about $10 million.

“The commissioner of corporations considers this a substantial settlement for the MoneyCenter thriftholders, the state’s Thrift Guaranty Corp., which guaranteed the accounts, and for the state taxpayers,” Querio said.

He said the MoneyCenter’s officers, directors and their liability insurance carrier previously paid $23.5 million to thriftholders.