Ernst & Young Firm Cleared in Conspiracy, Fraud Lawsuit

Accounting firm Ernst & Young has won a defense verdict that clears it of civil conspiracy and fraud allegations in auditing the books of Parker Automotive Corp. in Irvine.

Retired U.S. District Judge Lawrence J. Irving, sitting as an arbitrator, ruled in a civil lawsuit that Ernst & Young wasn’t liable for $5.2 million lost in a private placement of stock in the company. He found that the major accounting firm didn’t commit fraud and didn’t conspire with the company’s owner, convicted swindler Michael Parker, to defraud investors. The judge made his ruling Jan. 25, but the parties weren’t notified until last week.

Ernst & Young has paid hundreds of millions of dollars in verdicts and settlements in fraud suits stemming from the savings and loan debacle of the 1980s. But the accounting firm decided to “draw a line in the sand” for this case, said Eugene R. Erbstoesser, an Ernst & Young staff attorney.

“It’s nice to be vindicated,” Erbstoesser said. “This is an example of a couple of sophisticated investment advisors who, realizing that they had made a big mistake, tried unsuccessfully to save face” and blame Ernst & Young.

Bruce Simon, trial lawyer for the investors, did not return telephone calls to his office.

Parker was convicted in 1993 of bilking $11 million from now-defunct Columbia Savings & Loan in a lease-loan scam involving another company he had set up, Parker North American Corp. in Costa Mesa. He now is serving an 11-year prison term.