(Updates with company comment in fourth paragraph.)
Jan. 13 (Bloomberg) -- Ernst & Young LLP must pay $16 million to a former executive of now-defunct Superior Bank after a Florida appeals court found a judge erred in a case over the accounting firm’s miscues in auditing the thrift’s books.
Judge Jeffrey Streitfeld in Fort Lauderdale mistakenly allowed jurors in a 2009 trial to reduce the amount of damages ex-Superior Bank executive Alan Schein was entitled to over Ernst & Young’s auditing mistakes, the appeals court ruled Jan. 11.
The jury calculated that Schein suffered a total of $16 million in damages, but said the accounting firm was only responsible for $10.2 million under Streitfeld’s instructions in the case. The Fourth District Court of Appeal in West Palm Beach, Florida, reinstated the full amount of the verdict.
“We are certainly pleased with this result in light of the jury result,” Jack Scarola, Schein’s lawyer, said in an interview. Charles Perkins, a spokesman for New York-based Ernst & Young, declined in an e-mailed statement today to comment on the ruling.
Ernst & Young, which served as Superior’s outside auditor for a decade, failed to detect financial manipulations that culminated in the bank’s 2001 seizure by federal regulators, Schein’s lawyers argued during the case.
When he sold his mortgage marketing business to Superior in 1998, Schein said officials gave him the right to demand a sale of the mortgage-marketing unit, with the proceeds being split evenly between him and the bank.
Schein, of Dania Beach, Florida, didn’t attempt to exercise that option until after Ernst & Young’s accountants admitted they’d botched the loan valuations, he testified during the 2009 trial. That bid was rejected by Federal Deposit Insurance Corp. officials who took control of the Hinsdale, Illinois-based bank.
Superior, co-owned by the billionaire Pritzker family, was seized by the FDIC in July 2001 after losses depleted capital reserves. Those losses were tied to mortgages involving high- risk borrowers that were packaged as investments, FDIC officials said. The bank used improper accounting and record-keeping, regulators said.
Ernst & Young paid $125 million to settle regulators’ claims over its audits of Superior’s books, according to court filings. Superior’s owners, including the Pritzkers, agreed in December 2001 to pay the government $460 million over the bank’s collapse.
During the trial of Schein’s claims, Streitfeld ordered jurors to decide if the former executive was at fault for any percentage of his losses and to reduce any jury award by that amount.
After the panel found Schein’s damages amounted to $16 million, it concluded that Ernst & Young was only responsible for paying $10.2 million of that award under Streitfeld’s instructions. The appeals court said the judge erred in telling the jury to consider whether Schein was at fault in the case.
The case is Alan Schein v. Ernst & Young LLP, 03-000266, Complex Litigation Unit, Circuit Court for the 17th Judicial Circuit of Florida, Broward County (Fort Lauderdale).
--With assistance from Sophia Pearson in Philadelphia. Editors: Glenn Holdcraft, Stephen Farr
To contact the reporters on this story: Susannah Nesmith in Fort Lauderdale, Florida, at firstname.lastname@example.org; Jef Feeley in Wilmington, Delaware, at email@example.com
To contact the editor responsible for this story: Michael Hytha at firstname.lastname@example.org