S&L; Accounting Firm Partners Face Liability

A judge overseeing civil suits relating to the failure of Lincoln Savings & Loan ruled Thursday that partners in three major accounting firms are individually responsible for any damage awards investors may win.

U.S. District Court Judge Richard M. Bilby in Phoenix certified as class-action defendants the partners of Arthur Young & Co., Arthur Andersen & Co. and Touche, Ross & Co. Only partners with the firms when they represented American Continental Corp.--roughly from 1984 to April, 1989--are included.

Arthur Young and Touche Ross have since merged with separate firms and are now Ernst & Young and Deloitte & Touche.

American Continental, which owned Irvine-based Lincoln, went bankrupt in April, 1989, and regulators seized the S&L.; Thousands of investors lost more than $250 million from American Continental’s collapse, and the thrift’s failure is expected to cost taxpayers more than $2 billion.

Bilby’s decision puts at risk the assets of nearly 4,000 individual partners at the three firms, giving plaintiffs--many of whom lost their life savings in American Continental bonds--another avenue to recoup their investments.

Defense lawyers contend that the ruling was unnecessary because partners always are liable for a partnership’s debts, including any judgments. “I don’t think it really changes a thing,” said Stuart L. Kadison of Los Angeles, a lawyer for Arthur Andersen. “They still have to win a case against Arthur Andersen for liability.”

But the bondholders’ attorney sought to make the partners defendants individually because the insurance coverage available to the three accounting firms would not cover all claims made in the cases.

The accounting firms are among a host of defendants sued in 17 class actions consolidated in Bilby’s court. The suits contend that American Continental’s former chairman, Charles H. Keating Jr., with the help of other defendants and politicians perpetrated a securities scheme that defrauded bondholders.

Among that group are more than 17,000 small investors who bought nearly $200 million in bonds through Lincoln’s 29 Southern California branches. They have said that they were led to believe those bonds were safe or insured when, in fact, the bonds were risky and uninsured.

Keating, 66, was indicted in September on 24 counts of securities fraud and other violations related to the bond sales. He has pleaded not guilty.