A Canadian bank trust company filed a $9 million damage suit yesterday against the accounting firm of Price Waterhouse and Co. and International Bank of Washington, contending that the two conspired to misappropriate the assets of a now-defunct bank in the Bahamas.
The lawsuit, filed in U.S. District Court here, alleges that when International Bank acquired two-thirds interest in Bahamas' Mercantile Bank and Trust Co. Ltd. in 1973, it knew of a scheme by bank officials there to siphon off millions of dollars in Mercantile assets for their own use.
International Bank at first participated in that conspiracy and later fradulently induced investors to buy certificates of deposit in Mercantile in an attempt to recoup International's investment in the Bahamian bank, the suit contends.
The suit alleges that Price Waterhouse distributed balance sheets and other statements which "substantially misrepresented" the financial condition of the bank in order to induce investments and ward off efforts by Bahamian authorites to close down Mercantile.
Once International Bank recovered its maximum investment in Mercantile Bank, the Washington firm withdrew its support from the Bahamian bank, the suit contends. In 1977 International reportedly announced that Mercantile would be closed down because improper accounting -- apparently related to so-called insider loans -- was discovered during an audit. At the time, International said the shutdown would result in $7.5 million in losses.
Later that year, International Bank filed a $9 million lawsuit in New York against Price Waterhouse, charging that the big accounting firm had concealed Mercantile Bank's insolvency. The Washington bank charged then that Price Waterhouse partners in the Bahamas office covered up uncollectible loans.
The lawsuit filed here yesterday against International and Price Waterhouse was brought by the Canadian Imperial Bank of Commerce, Trust Co. Ltd., located in the Bahamas, in behalf of the beneficiaries of more than 40 trusts originally assigned to Mercantile Bank. Canadian took over the trusts when Mercantile closed down. Most of the beneficiaries are residents of the United States, the suit said.
The Price Waterhouse office in Washington and its managing partner here are named as defendants by the Canadian trust company. Allen I. Young, attorney for Price Waterhouse in New York, said however, that the audits for Mercantile were conducted solely by the accounting firm's independent branch in the Bahamas. Both Young and another attorney representing the Price Waterhouse Bahamian office yesterday denied any wrongdoing on the part of any member of the accounting firm.
John Tansey, a Washington lawyer who represents International Bank, also denied any allegations of misconduct by the bank. International is a diversified financial service company with investments in, among other things, international merchant banking, leasing and industrial production.
George Olmsted, a director of International Bank, and three of its officers, Henry N. Conway Jr., Derek W. Griffiths and W. Hugh McNaughton, also are named as defendants in the lawsuit filed yesterday. All four men were at one time directors of Mercantile.