Creditors of bankrupt United Companies Financial Corp. and the company's auditors have reached an undisclosed settlement in a lawsuit over the company's collapse.
In a state district court lawsuit that began last week, creditors had been seeking $685 million from Deloitte and Touche, claiming the auditing firm failed to advise company management properly about financial problems that later ruined United Companies.
The settlement was reached Wednesday night and called for terms to remain secret.
Dan Kolb, an attorney for Deloitte and Touche, said the auditing firm was prepared to present witnesses that would have testified that United Companies failed because of a variety of market conditions and not because of any malpractice by the auditing firm.
“You settle cases because there is always a risk,” Kolb said.
In the lawsuit, filed by bankruptcy court trustee William Hays, the creditors claimed Deloitte and Touche failed to catch a significant accounting error that forced the company to write off $605 million, leading to bankruptcy in 1999.
Fred Tulley, one of creditors' attorneys, said that shares of the settlement will be distributed to all three classes of UCFC creditors that have been established in bankruptcy court.
United Companies began offering high-interest mortgages to risky borrowers in the 1940s. In 1993, the company began putting together groups of those loans and selling them to investors.
Part of the deal called for United Companies to pay the principal and interest on defaulted loans. The creditors contended that United Companies failed to account for the interest that it was paying but not properly recording in its financial records.
The creditors argued that Deloitte and Touche should have caught the mistake earlier.
In 1999, shortly after the error was found, United Companies wrote off $605 million as debt and filed for bankruptcy.