Friday, July 05, 2002

Wallace's joins suit against accountants

Auditor blamed in bankruptcy case

The Associated Press

        LEXINGTON — A bankruptcy judge has agreed to let Wallace's Bookstores join four creditors in suing the Lexington accounting firm that audited the financial statements of Wallace's bankrupt bookstore company.

        “I don't want to say we are in a race,” said Wallace's attorney Frank Becker, “but we don't want to be the last to have our case heard.”

        “Contrary to what Mr. Becker says, it is a race,” replied Kevin Henry, attorney for Potter & Co.

        Potter is the Lexington accounting firm that audited Wallace's books before Wallace's went into bankruptcy last year with $152.3 million in debts.

        Potter is now being sued by Wallace's and four creditors of former Gov. Wallace G. Wilkinson, Wallace's founder, who is also in bankruptcy reorganization.

        Wallace's and the creditors — The United Co., the estate of the late Dave Thomas, George F. Valassis and Union Planters Bank — allege that errors and negligence by Potter contributed to Wallace's collapse.

        Potter denies the allegations.

        Mr. Becker told U.S. Bankruptcy Judge Joseph M. Scott Jr. Wednesday that Potter & Co. is organized as a limited liability company that has one big asset — a professional liability insurance policy that will pay off if Potter is found to be responsible for Wallace's problems.

        Under state law, Mr. Becker noted, the plaintiff who wins the first judgment against Potter might collect all of Potter's insurance, leaving nothing for the other plaintiffs.

        The four creditors “are now charging ahead with their cases,” he said, so Wallace's wanted its bankruptcy court lawsuit against Potter put back on the court's active docket where it had been until the other lawsuits were filed in U.S. District Court in Lexington.


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