VideoTwo auditors were deemed "incompetent" by Britain's High Court in a case involving the most famous derivatives trader in history, Nick Leeson.
Both auditors are being sued for failing to spot Leeson's unauthorized trades on the Singapore Monetary Exchange (SIMEX) in 1994. Leeson's bets ended up costing his employer, Barings Bank, $1.4 billion. Those losses ultimately forced the storied UK bank into bankruptcy. Barings was later bought by Dutch banking giant ING.
The auditors in question are the British and Singapore branches of Coopers & Lybrand (now part of PricewaterhouseCoopers LLP) and the Singapore branch of Deloitte & Touche LLP.
"Flagrant window-dressing" of financial information by Leeson "should not have escaped even a newly qualified accountant," remarked Charles Aldous of KPMG, attorney for the bank's liquidators, to Britain's High Court. There was, said Aldous, "no excuse" for not spotting Leeson's unauthorized trades.
"If this basic audit failing had not happened none of this would have occurred and Barings would still be here today," he added. "It is our case that it was through Coopers & Lybrand's and Deloitte & Touche's negligence that Leeson's fraud was not detected and reported to Barings."
"Their duties were to plan and carry out the audits just so, as to be able to detect just the sort of wrongdoings that Leeson perpetrated," Aldous said. But, he argued they bore a "heavy responsibility" for failing to do this.
KPMG is seeking $1.47 billion in damages from the two auditors in a court action expected to last more than a year.
As of last night, however, KPMG's lawyers were seeking an out-of-court settlement, according to FT.com. The lawyers are thought to have been locked in talks with PricewaterhouseCoopers, the main defendant in the action, reports the Financial Times's Web site. The site notes that Deloitte & Touche is not involved.
Andersen Buys PwC's French Business
Last week, Andersen bought the French consultancy Price Waterhouse Management Consultants S.A.S.
"Their decision to join us comes at a time when we are aggressively investing in building our firm," said Joseph F. Berardino, Andersen's chief executive officer, in a company statement.
A letter of agreement was signed last Thursday, following a vote of PWMC partners to convert their ownership interest in PWMC to a partnership interest in Andersen in France. The combined interest will employ 900 consultants and generate annual fees of $140 million, under the direction of Olivier Chatin, the consultancy's newly appointed managing partner.
"Our partners are eager to participate in Andersen's integrated international network," said Yves Jarlaud, PWMC's current managing partner. "This was a deliberate choice reflecting our strong belief that this is a winning combination for our clients and our people."
The integrated teams will be part of Andersen's Business Consulting practice, which has global fees of more than $1.6 billion.
Financing News
While economists debate whether the Fed's latest half-point interest rate cut will jump-start the near-recessionary economy, one thing is for sure: The corporate bond market, already experiencing record issuance, should enjoy an even more active calendar as companies rush to lock in the lowest rates in decades.
Meanwhile, a number of banks predictably rushed to cut the prime rate -- the key rate reserved for their most credit-worthy customers -- to 5.5 percent from 6 percent after the Fed did its thing. The banks include Bank of America Corp., J.P. Morgan Chase & Co.'s Chase Manhattan Bank and Morgan Guarantee Trust, FleetBoston Financial Corp. and Banc One Corp.
Even foreign governments are taking advantage of the low US rates. On Tuesday, representatives of the country of Chile filed a shelf registration to periodically issue up to $2 billion in debt securities and warrants. According to the filing, the Chilean government plans to use the net proceeds for general purposes, including financial investment and, also, the refinancing, repurchase, or retiring of domestic and external debt.
Meanwhile, companies continued to rush sizable debt issues to market. Detroit Edison Co., a subsidiary of DTE Energy Co., placed $700 million in two-part first-mortgage notes, led by Salomon Smith Barney Inc., Barclays Capital, and Banc One Capital Markets Inc.
The utility borrowed $200 million in four-year notes priced to yield 5.091 percent, or 132 basis points over Treasurys. The power provider also placed $500 million of nine- year notes priced to yield 6.128 percent, or 160 points over the benchmark. Both issues were rated a3 by Moody's Investors Service and A-minus by Standard & Poor's Corp.
Arizona Public Service, a subsidiary of Phoenix-based Pinnacle West Capital Corp., launched a $400 million debt offering. Underwriting for the 10-year senior notes was led by Credit Suisse First Boston Corp. and J.P. Morgan.
Old National Bank, a unit of Old National Bancorp, issued $150 million in 10-year subordinated bank notes, led by Credit Suisse First Boston. The subordinated debt was priced to yield 6.768 percent, or 225 points over Treasurys, and was rated Baa1/BBB-plus.
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