O.C. Jury Finds Accounting Firm Liable for Fraud

Six years after investors lost $136 million in fraud-ridden First Pension Corp., an Orange County jury on Friday found accounting giant Coopers & Lybrand and one of its partners liable for both general and punitive damages.

The Superior Court jury determined that Coopers, which has since merged to become PricewaterhouseCoopers LLC, and partner Hal Hurwitz misrepresented First Pension’s financial condition, concealed material information and aided and abetted the company’s managers in the fraud.

The jury took more than nine days to reach a verdict against the accounting firm for the former Irvine pension administrator and its affiliated companies, VestCorp and VestCorp Securities.

The verdict rings up one more victory for securities plaintiffs, who often look to the deep pockets of professionals like accountants and lawyers to recover lost investments.

“You can be in a firm, have all the protections you think you can have, then have one partner do something and it costs [money],” said William N. Lobel, a Newport Beach lawyer with Irell & Manella.

The jury will return to court Tuesday to begin the second phase of the trial, determining the amount of damages Coopers & Lybrand should pay to about 350 plaintiffs. Investors, though, were ecstatic with the first verdict.

“How wonderful!” exclaimed one woman as she raced from an elevator, too late for the jury’s decision, to embrace about a dozen other plaintiffs.

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Many of them were overcome with emotion, crying and hugging each other in a courthouse corridor.

The group, some of whom had traveled from Northern California and San Diego to attend parts of the 3 1/2-month trial, had kept a vigil outside the seventh-floor courtroom since the jury began deliberations last week.

But a gag order imposed by the trial judge stopped them from saying much.

“This has been going on for six years and we don’t want to jeopardize anything now,” said one man, who declined to be identified. Some of the original plaintiffs have died and others have become too infirm to pursue litigation.

Attorneys for both sides declined to comment, citing Superior Court Judge Francisco F. Firmat’s gag order.

Coopers & Lybrand and Hurwitz were the last defendants remaining--and the only ones to go to trial--in a case that stemmed from the long-running fraud.

First Pension’s politically well-connected founder, William E. Cooper of Villa Park, admitted swindling some 8,000 investors out of their retirement savings for a dozen years before his financial empire collapsed in April 1994. He was sentenced the following year to 10 years in prison and ordered to repay $73.1 million.

Two cohorts, Valerie Jensen and Robert Lindley, also were sentenced to prison terms for their roles in what amounted to a giant Ponzi scheme that misled clients into investing in nonexistent mortgages and took money from new investors to pay back earlier ones.

Many investors were elderly Southern Californians who had entrusted Cooper’s companies with their life savings.

Lindley, who is serving a nine-year sentence in federal prison, had been an accountant at Coopers & Lybrand before joining Cooper’s operation. He was the liaison with Hurwitz, whose firm worked on several dozen auditing and accounting matters for Cooper’s companies.

Cooper siphoned part of the funds his firms collected to make campaign contributions to Republican leaders, including former Gov. Pete Wilson and Rep. Christopher Cox (R-Newport Beach). Wilson later refunded $8,000 in contributions Cooper made to his gubernatorial campaign, and Cox returned $2,000 made to his election run.

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Civil lawsuits ensnared Cox, who helped prepare a securities offering for a First Pension entity in the mid-1980s when he was in private practice at Latham & Watkins. He has said the work was unrelated to the First Pension scam. He also worked in 1984 on Cooper’s attempts to acquire a California bank.

Cox and another Latham partner eventually were dropped from the litigation, but the firm and a former associate, Gary Mendoza, who briefly served as commissioner of the state Corporations Department, settled for an undisclosed sum.

As he fought the claims against him in the First Pension lawsuits, Cox carried a controversial bill in Congress to make it harder for investors to prove securities fraud in federal court. Plaintiffs’ trial lawyers accused him of conflict of interest. Once the measure passed, plaintiffs’ lawyers turned to state courts to file their cases.

Cox has long maintained that he knew nothing about the First Pension fraud, and Cooper said he kept Cox and others in the dark.