LONDON -- The liquidator of the Bank of Credit and Commerce International will seek billions of dollars in damages from the failed bank's auditors, people involved in the case said yesterday.
The liquidator is expected to seek the huge damages as part of civil lawsuits filed in March against Price Waterhouse, BCCI's main accounting firm during most of the late 1980s, and Ernst & Young, which also audited portions of the bank's activities, officials of the accounting firms said.
The suits accused Price Waterhouse and Ernst & Young of negligence in their audits of the bank in 1985 and 1986. BCCI was seized last year after regulators and criminal investigators in Britain and the United States found what they said was evidence of widespread fraud at the bank. The liquidator, the accounting firm Touche Ross, must file its damage claim specifying the financial harm reportedly caused by the auditors, no later than today, people involved in the case said.
As they did in March, when the suits were filed, both Price Waterhouse and Ernst & Young denied the allegations by Touche Ross and said they believed they would be completely vindicated in court.
Reports in British newspapers yesterday said that the liquidators would seek $8 billion in damages. Officials of Price Waterhouse and Ernst & Young said they were not aware that the claim had actually been filed, but they said the $8 billion figure was about what they had expected. A spokesman for Touche Ross declined to comment.
BCCI's failure led to losses estimated as high as $10 billion for depositors and shareholders. In attempting to recoup those losses, the depositors, shareholders and the liquidator have focused primarily on the bank's accounting firms, Price Waterhouse in particular.
Price Waterhouse approved BCCI's accounts through 1989 as giving a "fair and true" view of the bank's finances. The firm, however, informed the bank by early 1990 that it had found questionable loans and other transactions. Price Waterhouse was later asked by the Bank of England to conduct a thorough review of BCCI's activities, and the firm's findings were the basis for the regulatory takeover of the bank nearly 15 months ago.
Ernst & Young audited portions of BCCI's business through 1986, when the bank gave all its accounting business to Price Waterhouse.
The Touche Ross claim against the accounting firms is believed to have the support of BCCI's majority shareholder, the government of Abu Dhabi. People involved in the case said Abu Dhabi was eager to seek substantial damages from Price Waterhouse and Ernst & Young.
Abu Dhabi has portrayed itself as the largest victim of BCCI's collapse, but its role as the bank's majority shareholder has come under increasing scrutiny from government investigators in the United States and Britain.
Under a settlement put to the bank's creditors by Abu Dhabi, the legal action against the accounting firms would be taken over by the Abu Dhabi government, with any proceeds to be split between Abu Dhabi and the creditors. As part of the proposal, Abu Dhabi has offered to pay the creditors $2.2 billion to help cover losses.