Torrance Battles Auditors Over $6-Million Loss

With Steven D. Wymer bankrupt and in prison, the city of Torrance is seeking to recover the $6 million it lost to the investment adviser by pinning the blame on its auditors, Deloitte & Touche.

In a trial that began late last month, city attorneys have argued that the Connecticut-based accounting firm, which conducted city audits from 1989-’91, should have detected that Torrance’s investments with Wymer were risky.

Wymer, who is serving a 14 1/2-year sentence at the federal prison in Lompoc, admitted that after he lost money through bad investments he disguised the losses to clients and regulators by forging documents and promising high returns. Torrance and dozens of other cities in California and Iowa lost about $100 million in the scheme.

The trial, moving at a slow pace as attorneys explain audit procedures to the jury, has become a blame-game over who could have prevented the losses. Deloitte & Touche attorneys say it is the City Council that bears responsibility for monitoring the city’s investments.

Torrance’s attorney, Christopher Caldwell, argues that Deloitte & Touche’s accounting team was inexperienced and failed to fully examine records of the city’s investments with Wymer. When it came down to verifying the value and existence of the investments, Deloitte & Touche relied on Wymer’s word, city attorneys say.

City officials also say that Deloitte & Touche could have warned the city because another office of the accounting firm had served as auditors for Wymer’s investment firm, Denman & Co. Deloitte & Touche’s Newport Beach office dropped the firm as a client in February, 1990, after learning that Denman was circulating fraudulent financial statements.

It was not until late 1991 that Torrance officials learned through newspaper accounts that Wymer’s assets were frozen by the Securities and Exchange Commission. Instead of the $6 million that city officials thought was in their account, there was only $92. So far, the city has spent $600,000 trying to recover the money, according to the city attorney’s office.

But Deloitte & Touche’s attorneys say that its Los Angeles auditors working on the Torrance account never learned that its Orange County office had dropped Wymer’s firm as a client. Its auditors on the Denman account also were bound by client confidentiality. Had Deloitte warned the city about the Wymer investment, it could have been “exposing itself to significant liability if the charges were wrong,” according to Deloitte & Touche’s trial brief.