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Peat Marwick, Comerica Settle TMI Suit

Accounting: Both sides claim victory in case that pitted Big Six firm against 20,000 state teachers.

January 21, 1998|JAMES S. GRANELLI | TIMES STAFF WRITER

SANTA ANA — A lawsuit that promised to put the ethics of the accounting profession on trial was settled for $14 million Tuesday, ending nearly four years of litigation but leaving some investors less than satisfied.

Just before a jury was to be selected, Big Six accounting firm KPMG Peat Marwick agreed to pay nearly $10 million and Comerica Bank-California agreed to pay more then $4 million to end all litigation stemming from the 1994 collapse of Teachers Management & Investment Corp.

Teachers statewide lost $100 million in TMI's collapse, and blamed the Newport Beach company and its auditors, lawyers and bankers for allegedly propping the company up while the professionals collected fees.

The case stems from excesses of the overheated real estate market of the 1980s, when many companies and investors turned a blind eye to the impending crash.

Neither Peat Marwick nor Comerica admitted liability in settling.

Teachers who appeared in court Tuesday were glad the case was over. Some said the settlement appeared to be the best they could get, but others were unhappy with it.

"I can't describe the damage that has been done to the teachers and the minuscule amount being returned per investor," said Stuart Halperin of Corona, a retired teacher and administrator in the Corona-Norco school system.

The teachers lost about $50 million in principal and more in interest. Together with past settlements, they'll be getting back an average of 40 cents on each dollar invested, before paying attorney fees and costs.

The settlement halts a case that was gaining attention from the accounting industry, which is working on an overhaul of professional ethics rules on maintaining independence from audit clients.

About 20,000 teachers statewide had alleged that Peat Marwick sacrificed its independence by failing to warn them that TMI was insolvent while collecting $2.5 million in fees for auditing their partnerships over three years.

The accounting firm's payment is "a resounding recognition of Peat's exposure to liability," said Ronald Rus of Irvine, trial lawyer for the teachers.

In a prepared statement, Peat Marwick said: "It is a vindication of our position that the plaintiffs' claims were meritless. If the plaintiffs thought they could have proven their allegations, they would have taken the case to trial."

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