Accounting firm is dismissed from federal fraud case.

Accounting firm is dismissed from federal fraud case

Kenneth Leventhal & Co., the only national accounting and consulting firm based in Los Angeles, was ruled not liable by a federal judge for investor losses from failed real estate syndications promoted by Brichard & Co.

Leventhal was hired as a real estate consultant by the San Francisco-based promoter, which raised more than $50 million from investors during 1982-86 through syndication of apartment complexes in San Diego and Phoenix. After the properties' values fell, investors filed suit in 1987 against Brichard, which was formed by Brian McCarthy and Richard Roland.

Claims also were filed in class actions and a number of individual suits against Brichard's auditing firm, Price Waterhouse; law firm, Orrick Herrington & Sutcliffe; Leventhal; and others. Alleging significant damages, investors claimed existence of a massive conspiracy to sell investments that all the defendants knew were doomed to fail.

(It is standard procedure in such suits for plaintiffs and their attorneys to name in their actions everyone even remotely related, but especially those with "deep pockets." They serve as assets to pay hefty damages and attorney fees that may be negotiated or awarded by courts in the event that the primary defendants have inadequate funds to pay.)

Most of the other defendants, which were mentioned by name in the prospectuses that Brichard furnished investors, countered that losses suffered by investors resulted from a downturn in the real estate markets. But Leventhal requested summary judgment on other grounds to dismiss the charges against the firm before start of trial, explained James F. (Jim) Strother, Leventhal's general counsel.

Leventhal, he said, stressed it was not mentioned in the prospectuses. Thus, Strother said, the firm successfully argued it had no duty to analyze the securities offerings to ensure proper disclosure was made of the negative information the firm had reported to Brichard about the real properties.

U.S. District Judge Charles Legge agreed and dismissed Leventhal from the suit late last month before trial was to begin.

Other accounting firms, such as Laventhol & Horwath which filed for bankruptcy late last year after being overwhelmed by lawsuits, well might cheer about being dismissed from a lawsuit after two and one-half years of litigation. But local Leventhal partners nonchalantly passed off the dismissal of the firm from the Brichard case as unimportant.

"Insignificant!" declared Stan Ross, managing partner of the firm, which has 1,100 partners and employees in 13 offices across the nation.

"No impact whatsoever!" chimed in Jack Rodman, managing partner of Leventhal's L.A. practice. Far more significant, Rodman asserted: "Our company just completed a record year, and we have no debt."

With the disappearance of Laventhol, he noted, Leventhal became the largest real estate consulting and accounting firm in the nation.