OCC Fines Grant Thornton for Keystone Audits

The Office of the Comptroller of the Currency has fined Grant Thornton $300,000 for its audits of a West Virginia high-LTV lender that inflated its assets by nearly 25%.The accounting firm said it would appeal the comptroller's action. Comptroller John Dugan said the audit of the failed First National Bank of Keystone departed "so far" from accepted standards that it represents "reckless conduct" on the part of the accounting firm. Grant Thornton filed an unqualified opinion of Keystone's financial statement a few months before the OCC closed the bank in September 1999. Examiners discovered that the $1.1 billion bank did not own the servicing rights reported on its books and that the residuals on its securitizations of home improvement loans and loans with 125% loan-to-value ratios were overvalued. A Grant Thornton spokeswoman said the OCC ignored the recommendations of an administrative judge in levying the $300,000 civil money penalty. The judge concluded that Keystone's management had perpetrated a "pervasive fraud" to confuse auditors and examiners, the spokeswoman said. The Federal Deposit Insurance Corp. told MortgageWire that Keystone-related losses to its insurance fund totaled $563.1 million.