The accounting firm of Touche, Ross & Co. never joined Charles H. Keating Jr. and "his merry band of thieves" in conspiring to loot Lincoln Savings & Loan, a lawyer for the accounting firm told a federal court jury Tuesday.
Touche, now called Deloitte & Touche, is a "scapegoat, someone to blame," for the 1989 collapse of the Irvine thrift and its parent company, American Continental Corp., John T. Behrendt said during the final day of opening remarks in the complex civil fraud and racketeering trial of Keating and his professional advisers.
Thousands of investors, mostly depositors in Lincoln's 29 Southern California branches, lost $285 million after the company went bankrupt and regulators seized the S&L; in April, 1989. Lincoln is the nation's biggest thrift failure, costing taxpayers $2.6 billion.
Keating, who has become the national symbol of excess and arrogance in the industry, is expected to be called to the stand today as testimony gets underway.
The 68-year-old former Arizona developer, already awaiting sentencing on his state securities fraud conviction and charged with fraud, conspiracy and racketeering in two federal indictments, is expected to invoke his Fifth Amendment privilege against self-incrimination.
Other former executives, including Lincoln's last president, Ray C. Fidel, who was in charge of the bond sales program at Lincoln branches, also are expected to appear and refuse to testify.
Touche Ross, which took over as American Continental's auditors in November, 1988, never completed its work and never issued any opinions or statements that investors in the company relied on, Behrendt told jurors.
Rather than conspiring with Keating, he said, the accounting firm was delving into its task and learning more about the company as it conducted its audit in the waning days of American Continental's existence.
The lawyer laid bare the wide rift among some defendants by arguing that Touche was "on to Keating" and began reviewing Lincoln transactions that already had been cleared in prior audits done by Arthur Young & Co. and Jack Atchison, its partner in charge of the audits.
But Behrendt said Touche never learned enough to determine if Keating and his executives were engaged in fraudulent activities.
Atchison and Arthur Young, now called Ernst & Young, also are defendants in the trial.
Investors contend that Touche Ross should have had reason to question the integrity of American Continental's management at the outset and shouldn't have accepted the company as a client. They also contend that simply by taking American Continental on as a client, Touche Ross allowed the company to prolong its life. And they assert that the accounting firm should have quit once it learned about Keating's financial shenanigans.
But Behrendt argued that there was nothing sinister or wrong about assuming the traditional auditor's role as the public's watchdog. He said plaintiffs have contended variously that Touche Ross should have been a better watchdog and that the firm should have quit.
"What kind of watchdog do they really want?" he said. "What they really want is a scapegoat, someone to blame."
Lawyers for other groups of defendants also gave their opening statements Tuesday.
* Offerman & Co., a Minneapolis investment banking firm, and its president, Joseph Offerman, asserted that it had no role in the sale of bonds at Lincoln and that it exercised proper care in underwriting two issues of debt securities that were senior to the bonds.
* Societe d'Analyses et d'Etudes Bretenneau, a French bank, asserted that it did not assume the liabilities of the nearly bankrupt Saudi European Bank when it bought the Paris bank in 1989. It contended that it was helping to avoid a banking crisis in France, where deposits are not insured.
* Lexecon Inc., a Chicago economic consulting firm, asserted that reports that it wrote on the economic viability of four Lincoln transactions were sought by regulators and did not involve the sale of American Continental securities. Regulators rejected or ignored the reports, the company's lawyer said.