DOUBLE THE TROUBLE
The Denver accounting firm Patten, MacPhee & Associates has received a thorough drubbing in the national press over the past two weeks for its role in the hottest scandal of Bill Clinton's presidency--the Whitewater real estate deal. Now, it turns out, the firm also finds itself near the center of a locally famous dispute: Its officers have been accused of giving "false testimony" about their relationship with the man who ran Denver's infamous M&L Ponzi scheme.
"Very serious issues have arisen concerning the truth of the firm's...representations...concerning [its] prior involvement with M&L," four attorneys charged recently in a motion filed in Denver's U.S. Bankruptcy Court.
The controversy dates back more than two years, when the Patten firm was hired by Christine Jobin, a Denver attorney named as trustee to oversee the massive M&L bankruptcy case.
Headed by Robert Joseph, M&L Business Machine Co. purported to be engaged in the worldwide sale of computers and other business equipment. In reality, the company operated primarily as a giant illegal "Ponzi scheme," in which early investors were paid exorbitant returns with new investors' money.
M&L collapsed in 1990. Its investors lost more than $20 million. Joseph and several cohorts were indicted and sent to prison.
The bankruptcy case has been grinding its way through the courts ever since. So tangled was the M&L financial web that, in summer 1991, Jobin asked a federal bankruptcy judge to hire Patten, MacPhee as experts to help analyze the company's books.
But there was an objection to the request. Joseph's attorney, Steven Newell, charged that the firm had a conflict of interest. He noted that Patten vice president Gregory Ellena had met with Joseph in 1987 about brokering a $600,000 loan for M&L from Jefferson Bank & Trust in Lakewood.
At a hearing before the judge that August, Ellena and Leslie Patten, president of the accounting firm, acknowledged they met with Joseph after he approached them about brokering the loan. But they both testified under oath that they eventually turned down M&L's business because Joseph wouldn't give them documentation of the company's finances.
"Has [the firm] ever been engaged by Mr. Joseph personally?" Jobin asked Patten during the hearing.
"No," Patten answered.
The judge ruled in Jobin's favor, authorizing the firm's appointment. Since then, it has submitted bills totaling more than $200,000 to the court for its work on the case.
But a motion filed recently in bankruptcy court by Bank of Boulder attorneys has raised the conflict-of-interest charge anew. (Bank of Boulder lent money to M&L and was later sued by Jobin, who alleged that the bank participated in the M&L fraud. The bank denies the charge.)
Patten, MacPhee actually "accepted Mr. Joseph's engagement," the bank attorneys say, and "made substantial efforts" on Joseph's behalf to secure the $600,000 Jefferson Bank loan.
As evidence, the lawyers point to a letter written by Patten's Ellena to the Jefferson Bank president in October 1987.
Patten "has been engaged by the principals of M&L" to help secure financing, Ellena wrote. "[W]e believe that the proposed structure [of the loan] represents a relatively low-risk, profitable opportunity for Jefferson Bank & Trust."
The Bank of Boulder's lawyers charge that Ellena's letter is "utterly at odds" with statements made by the Patten firm's officers before the bankruptcy judge at the hearing in August 1991. In court papers, they go on to describe the statements as "false testimony" and ask the court to remove Jobin as M&L trustee.
Leslie Patten says he can't respond directly to the charge because it involves pending litigation. He does say, however, that it was his own firm that first revealed its contacts with Joseph--in court affidavits written when Jobin first proposed that Patten, MacPhee be hired. "When we were approached by the trustee...we made full disclosure," he says.
Ellena's letter to Jefferson Bank, Patten contends, was routine and very preliminary, and the firm turned down Joseph's business at some point within the next three weeks.
Jobin could not be reached for comment. In a response filed in court she called the recent allegations "completely groundless, wholly without merit and nothing more than a transparent, 11th-hour litigation tactic." A hearing in the matter is scheduled for Jan. 31.
Patten, MacPhee, meanwhile, continues to be buffeted by criticism of its financial review of Whitewater Development Co. for Bill Clinton's 1992 Democratic presidential campaign.
The firm was retained early in 1992 by James Lyons, a Denver attorney and Clinton friend, after the campaign learned that the New York Times was investigating Whitewater, a failed land venture in the Ozarks in which Bill and Hillary Clinton were investors.
The Times, in an article that spring, reported that the Clintons were partners in the deal with James McDougal, owner of a thrift closed by federal regulators in 1989. The Clintons were under little risk if the venture flopped, the paper said, but stood to profit handsomely if Whitewater did well. McDougal's bank, in turn, appeared to have received preferential treatment from Arkansas state regulators while Clinton was governor.
Lyons, an expert in banking and commercial litigation, stepped in and hired Patten, MacPhee to review Whitewater's files. Two weeks after the Times story ran, the firm produced a report stating that the Clintons were passive investors in the venture, had been at "considerable" risk and ended up losing almost $70,000 in the deal. After the report was released to the media, the story died.
Last November, however, the Washington Post reported that Patten, MacPhee's review had omitted Whitewater's largest-ever land purchase: a $550,000 acquisition in 1986. Since Christmas the media's interest in the Whitewater story has been rekindled, and Patten, MacPhee has found itself under steady attack.
U.S. Representative Jim Leach, an Iowa Republican, calls the firm's report "ridiculous" and derides it as "defensive political posturing." Times columnist William Safire charges that Lyons hired Patten, MacPhee to "whitewash Whitewater." And last week the Wall Street Journal impugned the firm's objectivity, noting that Lyons and Leslie Patten are friends and former business partners who owned two Denver-area banks together in the late 1970s.
Patten, MacPhee refers questions about Whitewater to Lyons. "We are not at liberty to discuss anything about it...because it's under client-attorney privilege," says Marianne Beausoleil, a Patten vice president.
Lyons says he stands behind the report. He accuses the Journal and other newspapers of "journalistic sleight of hand," charging that they have judged the report using standards reserved for full-blown audits when what actually took place was a far less rigorous "financial reconstruction."
Audit standards "don't apply to what was done here," Lyons contends.
Lyons says he had considered picking one of the "Big Six" national account-
ing firms but chose Patten, MacPhee because "they have the best creden-
tials for forensic accounting and finan-
cial reconstruction in this part of the country."
Leslie Patten is a Republican, Lyons says, and there is "no question" that the firm objectively reviewed the Whitewater files. "Patten, MacPhee had no prior relationship of any kind with the Clintons," he says. "They were totally indepen-
dent from the campaign and from Whitewater."
Adds Lyons, "If I had to make the choice all over again, notwithstanding all the furor in the press, I'd make the same choice again today.
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