SEVEN DAYS INTO 1987, James Simmons needed to look a few people in the eye. The 62-year-old president and board chairman had spent a quarter-century building United Bank of Arizona into the state's fourth largest bank. Now, the payoff was at hand.

A new law had made it possible for out-of-state companies to buy Arizona banks, and the desert was ablaze with pecuniary romance. Banks like United were being courted by huge financial institutions offering princely sums to string another pearl on their corporate chains.

Every year for a decade, United had made more money than the year before. It had about $2.5 billion in assets and branches all over Phoenix and other Arizona cities. Like all other banks, it appeared to be getting rich from a real estate boom that had made Arizona one of the country's fastest-growing states.

The United Bank pearl was shimmering brightly in the eyes of an English multinational corporation called Standard Chartered PLC. More than a year earlier, the company and the bank had gotten engaged, and now Standard Chartered was ready to cut a check for $335 million to buy United and place it under the control of its California subsidiary.

That January day, Simmons had before him a two-page document that would make or break the sale. It was a wordy certificate--crafted by lawyers paid well to mind every subparagraph and semicolon--essentially assuring the buyers that United Bank was not lying about its fiscal soundness.

Simmons and another bank officer had to sign the certificate for the deal to go through.

Around a conference table, Simmons gathered the ten top managers of the bank, men and women who knew the institution intimately and in some cases had spent the bulk of their careers helping it grow from an upstart to a large, respectable institution.

Simmons laid the document before him on the table and read it aloud. Then, with hundreds of millions of dollars on the line, he started asking questions.

"I questioned each of the people in that room, and asked them if they had any knowledge or any reservations about signing that document," Simmons recalls. "There was not any indication from any of them. . .that there were any problems."
Simmons signed, and the next day a happy union was consummated. London-based Standard Chartered got its desert gem, and $335 million coursed its way into the bank accounts of United stockholders around the world, including Simmons and other United officers.

The bank kept its name, and Simmons and most of the other bank officials kept their jobs. Standard Chartered didn't plan to meddle much. It expected United to be a profitable Arizona franchise, reporting to the company's Union Bank subsidiary in California.

In only a matter of weeks, however, Standard Chartered began to suspect that somebody in Simmons' conference room had looked back at him and lied.

One after another, several of the bank's largest loans "blew up," as lawyers are prone to say. United found itself writing off tens of millions of dollars in losses and trying to explain to its new owners what was going wrong.

The marriage plunged quickly toward divorce and by summer, with Standard Chartered scraping for cash because of unrelated problems it faced back in England, the bank was on the block. In January 1988, United Bank was sold to Citicorp for $207 million, although Standard Chartered had to buy back $140 million in bad loans as part of the deal. All told, Standard Chartered would later argue, the star-crossed romance had caused it $338 million in losses.

Determined to recover some of the money, the English banking giant began looking for somebody to sue.

Its sights eventually focused on a group of people who had not even been in the conference room that day, but whose company had deep enough pockets to justify massive, expensive litigation--Price Waterhouse, the internationally known Big Six accounting firm, which for years had audited United Bank.

During what became the state's longest civil trial, lasting 11 months, Standard Chartered officials argued that Price Waterhouse should have discerned the bank's shaky financial underpinnings and alerted them before they bought it. In May, in a verdict that stunned the accounting profession, a jury agreed and awarded Standard Chartered the $338 million it asked in compensation, the largest civil verdict in state history.

An old joke holds that auditors enter a battlefield after the fight and bayonet the wounded. But, as the Price Waterhouse verdict underscored, accountants have found themselves facing bayonets after the financial carnage of the late 1980s.

The end of the decade was not kind to banks in Arizona, or across the country. First, oil cratered. Then real estate. The stock market crashed. Savings and loans dropped almost daily. Banks, big and little, sought buyers with deep pockets to save them from collapse.

As federal regulators, stockholders and the public looked for players with some money left to atone for the country's banking debacle, professionals like accountants and lawyers who had helped paper the deals were drawn into the blamefest.

The Resolution Trust Corporation, created to clean up the thrift mess, has filed multiple lawsuits against auditors for falling asleep at the switch as thrifts piled up shaky loans. Recently, the RTC also included Beus, Gilbert & Morrill--the law firm that represented Standard Chartered--in an unrelated $1.3 billion lawsuit over the failure of Western Savings and Loan.

Price Waterhouse says the verdict in the United Bank case is patently unfair and raises questions about just how far those who lost money will go to find a scapegoat. The firm promises vigorous appeals, and it likely will be years before the final outcome of the suit is decided.

"This case was nothing more than a finger-pointing exercise and an attempt to shift responsibility for their own bad business decisions to someone who played no role in the transaction," says Erica Baird, special assistant to the Price Waterhouse board chairman in New York City. "This is outrageous. This is ridiculous. This is going to be reversed on appeal."
Attorneys for Standard Chartered, however, contend that the accountants have been rightly brought to task for failing to diagnose an ailing bank. "We believe and the jury believed that the loss would have been avoided by Standard Chartered if Price Waterhouse had done their job," says Mark Dangerfield, an attorney with Beus, Gilbert & Morrill.

To press its case, Standard Chartered had to argue it had placed almost blind trust in Price Waterhouse's audits of United. And ultimately that meant forwarding an argument that--although the jury accepted it--strikes some observers as incredulous.

The argument was that a primary cause of the multimillion-dollar business fiasco--a deal scrutinized for more than a year and blessed by legions of supposedly savvy bankers and attorneys in Arizona, California and England--was a junior accountant with Price Waterhouse named Laurie Pollitt who was sent in to examine United Bank's loans when she was 25 years old.

the last thing Laurie Pollitt says she expected, or wanted, in her life was to be dragged into the limelight. She did choose, after all, to become an accountant, a profession that does not inspire many television dramas and whose members generally retire with few newspaper mentions in their scrapbooks.

Pollitt, now 31, grew up in Louisville, Kentucky, as her accent attests. Her mother was an executive secretary, her father in construction, and Pollitt decided to become an accountant, she says, "because I wanted to be in business, wanted to have a career and I was very good in math."

At Eastern Kentucky University, she met her husband, Jeff. After graduating in 1982, she worked two years as an accountant at a data-processing firm in Cincinnati, Ohio, before job prospects brought the couple to the Valley in late 1984.

Pollitt, in her mid-20s, got on with the Phoenix office of Price Waterhouse in January 1985. That year she was introduced to the audit that would ultimately teach her that blame tends to roll downhill.

Price Waterhouse had audited United Bank for years, and the process changed little each time around. A team of fieldworkers, usually around four, according to later trial testimony, would go into the bank in the fall, set up a temporary office and spend several weeks poring over loan files, computer print-outs and other paperwork.

They were looking for warning signs--indications of fraud, slippery accounting, inadequate records and such--that might give reason to believe the bank was misrepresenting its condition in its financial statements.

In late December, more fieldwork was done, and then the team's paperwork and findings were passed up the Price Waterhouse chain of command. Karl Almquist, the partner primarily responsible for the United Bank audit, would ultimately review the work of his team and pass judgment on the bank's financial statements.

In the greater context of United Bank and multimillion-dollar bank mergers, Laurie Pollitt was a very small player.

As a relatively junior staff accountant still awaiting state certification, she made just more than $20,000 a year, according to trial testimony. Pollitt was assigned to the audit teams that went into selected United Bank branches during the two years before the bank was sold. Her first year, 1985, she looked primarily at credit-card accounts.

But in 1986, her role expanded greatly, and Pollitt found herself reviewing the files of complex commercial loans involving millions of dollars. Some of the loan portfolios she checked were the ones that "blew up" the next year, causing United's financial losses.

Pollitt says she did her job by the book and makes no apologies for her fieldwork. "It was a very good audit," she says, and she was a small part of it. At trial she would testify that there was no way she could have foreseen the impending troubles of some of the loans she reviewed.

In addition to her college degree, Pollitt says, she had several years of experience under her belt and received five weeks of training from Price Waterhouse in bank auditing.

Karl Almquist, the Price Waterhouse partner responsible for the United audit, says Pollitt was a perfectly capable member of the team.

But in court, Standard Chartered's attorneys needed to make Pollitt look like an idiot. Although she was not a defendant in the case, proving her incompetent was crucial to the argument that Price Waterhouse had bungled the United audits.

For 11 days, Pollitt was put on the stand and Leo Beus, the lead attorney for Standard Chartered, pounded away at her, trying to show that she had not done a thorough job. In painstaking and time-consuming detail, Beus attempted to reconstruct Pollitt's work during 1986 to show that, if she had known what she was doing, she would have uncovered the bad loans United Bank was carrying.

On the stand, Pollitt had trouble recalling many things about the audits, which were by then five years in the past. Trial transcripts give glimpses of a sometimes confused, upset and defensive witness.

No, she told Beus, she could not remember whether she had seen appraisals of artwork that had been used as collateral on a major loan. No, she did not remember whether she had read critical examinations of United Bank done by federal regulators. No, she could not recall if a lien on a piece of property should have been cause for alarm.

Heated exchanges between lawyers ensued when Beus accused one of Price Waterhouse's attorneys of coaching Pollitt while she was on the stand.

To Pollitt, it was a distasteful and enraging experience. "It was just totally absurd that he started on me," Pollitt says. "I think he did it to show off. I just didn't enjoy him, whatsoever. He, to me, was kind of the slimy-type attorney. I guess I was naive going in thinking that all attorneys are honest."

Pollitt, whose husband is one year away from finishing law school at Arizona State University, had never been involved in a trial before, much less a witness in a gargantuan civil suit between warring corporations.

But there she found herself, being hectored by high-priced attorneys looking for a scapegoat.

Pollitt was not working anymore for Price Waterhouse at the time of the trial. In early 1991, she had left to become controller for the Mega Foods grocery store chain.

For weeks the trial overwhelmed her life. Between testifying, trying to do her new job and preparing for the next day's questioning, she was regularly putting in 12- to 16-hour days.

Across the dining-room table of a Scottsdale house where she, her husband and two dogs live, Pollitt recalls the experience with a touch of Southern defiance. She considers questions carefully, but answers with determination.

She does not appear to be seeking sympathy and is, in fact, reluctant to talk about the case.

Her reluctance, she says, stems from an exasperated belief that she was wrongly dragged into the whole affair to begin with. Other accountants will understand that she did nothing wrong, she says. As for the general public, and the jury for that matter, she'd just as soon they forget about it.

The case has not affected her career, she says, and she is not concerned so much about professional fallout as she is with publicity she does not want.

"It got very tough," she says of the trial. "For me, testifying was for the principle of the thing. I didn't work for Price Waterhouse [at the time of the trial]. I didn't owe them anything. I didn't do anything wrong. I didn't think Price Waterhouse did anything wrong. So when I first went there, it was really for the principle of the thing."
Naively, she admits, she expected to answer questions truthfully and go about her business, drawing little notice. Instead, she says with bitterness, she learned that trials do not follow neat expectations the way accounting does. She became a sitting target as the first person from Price Waterhouse to take the stand.

"He [Beus] was going to ask me questions, I was going to answer and the jury was going to make a decision," she says. "I was naive in thinking that. It was a performance and there were games played. He wanted to push me around."
During and after her testimony, Pollitt says, she could not believe what was happening. The failure of a business deal between the state's fourth largest bank and a foreign multinational firm was being laid on the shoulders of an insignificant outside accountant.

"I knew myself that it didn't rest on my shoulders, the outcome of the audit or the outcome of the trial," she says.

John Binkly, a partner at Coopers and Lybrand, a Big Six firm hired by Price Waterhouse to go back and review the audit team's work, testified that Pollitt and the firm had done their jobs properly.

Pollitt's reputation was not the only one attacked at trial. Almquist, the partner overseeing the audit, also came under fire for not adequately supervising Pollitt and the other fieldworkers.

He, too, bristles at the mud thrown his way. "Yes, I'm offended," says Almquist, who retired from Price Waterhouse after 32 years for reasons unrelated to the lawsuit and is now business manager of the Heard Museum. "Not only the reputation of Price Waterhouse, but my personal reputation, which is something that I value very highly, has been challenged."

Almquist says he had no doubts at the time that the United audits were properly performed, and nothing that came out at trial changed his mind. But to six of the eight jurors who decided to award Standard Chartered its record verdict, Price Waterhouse did err, and Pollitt seemed to be a key part of the reason.

Juror Betty Swigart, who voted for the record award, said she was convinced that Pollitt and Almquist were largely at fault for not detecting the imminent problems with United's loans. "Price Waterhouse didn't do its job," says the 65-year-old retiree from the U.S. Department of Agriculture. "Laurie Pollitt had only two days of training to audit a bank. She was more or less the leading person doing the audit. Her supervisors should have followed through more and seen what was going on with some of these multimillion-dollar loans."

Two jurors disagreed vehemently with the majority's conclusion. Retiree Raymond Eagan, who was not pleased to spend almost a year of his life sorting out the fight between lawyers for two big companies, believes that what Standard Chartered's attorneys did to Laurie Pollitt was a crime in and of itself.

"These [lawyers] were making $500 an hour or $250 an hour," he says. "They make a woman who's under 30 years old look like a complete and utter asshole. That's not right. I think it was unfair because she was credible. She didn't steal any money. She didn't cause the damn bank to go under."
In fact, United Bank never did go under. Although it lost a lot of money, it never required a taxpayer bailout or intervention by federal regulators. There have been no criminal allegations of fraud or chicanery.

But United Bank's problems did mirror what happened to banks nationwide during the late 1980s. It was riding a boom carrying problem loans, even former president James Simmons acknowledges. When the bust came, the time bombs began to explode.

in february 1987, about three weeks after the United sale to Standard Chartered had closed, the first time bomb was laid on Simmons' desk.

A bank officer who did not normally review loans happened to look at a list of people who were past due on their accounts.

On the list was the Victorio Land and Cattle Company, which was run by Peter Wray, then husband of Gay Firestone Wray, a niece of the Firestone rubber family. Wray's company was the bank's largest single borrower with more than $18 million in loans, according to a Standard Chartered attorney.

Alarmed, the officer brought the loan up with Simmons. The bank president called in Paul Milus, the bank's chief credit officer. Milus had been with the bank for 20 years, trial testimony showed, and had been one of the people who sat across the conference-room table from Simmons three weeks earlier and assured him that he could sign the certificate attesting to the bank's soundness.

Simmons told Milus to bring in the loan files on Victorio, and learned, he says, that his chief credit officer had been lying to him. The Wray loans were a disaster.

For several years, trial testimony established, Wray's businesses--including cattle ranches and a real estate brokerage firm--had been in shambles. But instead of going under, Wray just kept asking for more money from the bank, and Milus kept giving it to him.

"Notwithstanding the acknowledged, obvious fact in the loan files that the company couldn't pay its bills through profits or cash flow, the bank continued to loan it millions of dollars," says Standard Chartered attorney Mark Dangerfield.

Within a matter of hours of looking at the Victorio files, Simmons testified, he realized that the bank was going to suffer a major loss. "It was obvious to me that the collateral was not sufficient to pay the loan by a substantial amount," Simmons testified at trial. After several days of investigating, the bank determined that it would have to write off $13.5 million in losses from the Victorio loans.

When informed of the losses, Standard Chartered had every right to be upset, Simmons says, because even he felt betrayed by a chief credit officer he says he trusted. "Obviously. . .it was misrepresented," Simmons says. "I don't think there's any question. It was misrepresented to me, and it was misrepresented therefore to [Standard Chartered]."

Simmons said Milus could not give him an adequate explanation of why he had continued to lend Wray millions of dollars without collateral. Milus, who was fired immediately after the Victorio loan problems were discovered, faces a separate lawsuit by Standard Chartered for his handling of the Victorio situation. Victorio went out of business. Wray and his wife were divorced, and he could not be located for comment. Milus, when approached for an interview, swiftly closed the front door of his home at the base of Camelback Mountain.

Ultimately, Simmons said, the bank decided that Milus' decision to continue lending Wray money was an isolated "dysfunction" on Milus' part. Whatever reasons Milus had for continuing to lend Wray money, and covering up the weakness of the loans, were apparently specific to Wray. No other large loans Milus had handled seemed to be at risk, Simmons said.

But over the next few months, federal bank examiners came across more burning fuses. When the Federal Deposit Insurance Corporation came calling for its regular review of the bank, lead bank examiner Norton Cook would later testify, investigators were deeply troubled by problems they found in United's books. There appeared to be millions of dollars more in loans on the verge of default.

Given the bank's condition, Cook later testified in a deposition, the bank's loan-loss reserves--money set aside to cover bad loans--were "grossly inadequate."

The underlying problems, Cook testified, seemed to be that the bank was growing too fast and its loan process was not keeping pace. Controls weren't in place to make sure that loans were being properly analyzed before they were made.

"Many of these loans were not well-documented, had major problems in their credit-analysis area, loan files were disorganized," Cook said in deposition.

In particular, the examiners believed that United was going to have to eat at least two more of its largest loans.

The first was a loan of $10.5 million to developer Lawrence Malanfant. Malanfant was in financial trouble, trial testimony showed. Two pieces of property he had put up to secure the loans--one in San Diego County and one in Lake Havasu--were dramatically overappraised, according to expert witnesses, and not worth enough to pay the loans back.

In the second case, a Tempe-based electrical contractor was on the brink of bankruptcy and owed the bank more than $10 million. The Newbery Corporation had told United Bank in 1986 that it was in trouble, and the bank had lent it another $3.5 million so it could try to dig its way out.

Simmons, at the time, took great exception to Cook's findings and fought the FDIC's insistence that loss reserves be increased because the Malanfant and Newbery loans were headed down the tank.

He wrote to Cook's supervisor asking that the FDIC report be changed. To this day, he says Cook was wrong. "The. . .two loans were not charge-off loans," he says. He calls them "problem loans" that would have paid out if the economy had held.

But by the end of 1987, both had been written off as losses. Taken together, the Victorio, Malanfant and Newbery loans accounted for more than $30 million in write-offs in less than a year.

Standard Chartered was not enamored of the new facets of United Bank it was discovering.

"They were interested in buying a top performing bank. They weren't interested in buying a problem bank," says Richard Williams, another Standard Chartered attorney.

By the summer of 1987, Standard Chartered was having problems of its own back home that crippled its ability to carry a troubled American bank, all parties to the trial agreed. The Bank of England was requiring British banks to increase their own loan-loss reserves to offset problems with loans to developing countries.

Hungry for cash to meet the new requirements, Standard Chartered put United Bank up in a fire sale. Citicorp bought it for $207 million, attorney Williams says, as long as Standard Chartered would agree to buy back $140 million of the bank's worst loans.

james simmons retired from United Bank after it was sold to Citicorp, almost exactly a year after he signed the all-important certificate. He served as chairman of Valley National Bank for two years after that, and was briefly touted as a possible head for the Resolution Trust Corporation.

Now, Simmons has a glass-walled office on the ninth floor of the Esplanade office building, where he is running his own investment company. He and President Bush beam down from a picture hanging behind his desk.

There is no way, Simmons says, that he could have known the choppy waters ahead on the day United Bank was sold. He had started United Bank in 1960 and nurtured it for 25 years.

The "dysfunction" of his top credit officer, he says, eluded the bank's own officers. He was aware that the Newbery and Malanfant loans were problems, but was still confident they could be worked out.

"We had a structure I think was excellent," Simmons says. "I don't think any structure we might have had, however, could have given us prior warning on the real status of Victorio."
Simmons did make millions of dollars from the sale of United, he concedes. At trial, he testified that he received somewhere between $3 to $5 million from his stock and profit sharing when the bank sold.

He has not escaped the legal snarl borne of the deal. He is suing Standard Chartered trying to recover attorneys' fees he believes the company owes him, and the company is suing him back over the Victorio loan losses.

If he could not foresee the impending problems at United, Simmons says, there was no reason to expect Price Waterhouse to. Certainly, he says, there was no reason to expect a junior accountant to.

"I never really depended on the auditors, except in a general way, to keep me informed of loan problems," he says. "We had people in the bank to do that, and I considered them much more able to keep me informed of loan problems than an outside auditor."
The fact remains, however, that United's loans did start exploding. Presumably, the task of outside auditors is to find out if bank officials like Simmons are myopic about their own institutions.

But to Simmons, and other Price Waterhouse defenders, it is the height of absurdity to argue that, in the end, a multimillion-dollar bank deal went bad because of Laurie Pollitt.

Standard Chartered, Simmons says, has made Pollitt and Price Waterhouse the scapegoats for its own bad business decision. Raymond Eagan, one of the jurors who voted against the verdict, reached that conclusion himself.

"It was their own damn dumb business decisions. They didn't check the bank out," Eagan says. "Who's horseshitting who? They took ol' deep money pockets Price Waterhouse to the cleaners. . . it's all just a great big corporation money game."
John Binkly, the expert witness hired by Price Waterhouse, points out that Standard Chartered had more than a year from the time it agreed to buy United until the deal closed. That was ample time for the company to send in its own auditors and scour the bank's loan files to look for problems, he says. If the problems were as obvious as Standard Chartered claimed, Binkly says, they could have easily found them before cutting the $335 million check.

Besides, Binkly asks, if Standard Chartered was relying on the Price Waterhouse audit to vouch for the bank, why did it close the deal on January 8, before the 1986 audit of the bank was completed?

"It's a shuddering thought to think that you're going to be held accountable for an audit that isn't done," he says.

Standard Chartered, Binkly believes, used revisionist history to best advantage in the case. "It's funny how when time passes you have selective memory," Binkly says.

But Standard Chartered's attorneys say the blame has been placed where it belongs. The Victorio loans were clearly in trouble in 1985 and 1986, well before the economic collapse, Richard Williams says, and the two other large loans--Malanfant and Newbery--were giving off major warning signals that should have been obvious to Price Waterhouse in late 1986. Cook of the FDIC, Williams notes, found the problems easily when he visited the bank a few months after the deal closed.

In the end, Williams says, the case does boil down to the people Price Waterhouse had in the bank during 1986 looking at the loan files. Most important among them, he says, was Laurie Pollitt.

"Looking at loans is not a task that an inexperienced auditor is capable of doing," he says. "You can't get somebody one year out of school and say here's a complicated commercial loan, go out and see if the loan is collectible."
Pollitt absolutely refuses to believe the blame that has been cast her way. "I shouldn't be involved," she says. "It's ridiculous that I'm being pointed out as a turning point in this case. I kind of want to ignore it, not acknowledge it. Because my point is it's wrong. I shouldn't be pointed out."



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