Woes at Mercury Dash Plans to Buy Bank Unit

Mercury Finance Co.’s agreement to buy a consumer finance business fell apart Thursday, after the auto loan company said allegedly phony bookkeeping entries had inflated its earnings and that it had fired its chief accountant.

Trading in shares of the Lake Forest, Ill.-based auto lender remained halted for a second day as the company’s lawyers and accountants pored through its books.

An attorney for fired controller James Doyle, whom the company had reported missing, said his client is working with federal investigators probing the company.

Bank of Boston canceled the sale of its Fidelity Acceptance Corp., originally valued at $453 million, saying “recent events regarding Mercury Finance constitute a breach” of the Jan. 10 sale agreement.

Bank of Boston was to get 32.7 million Mercury shares for its unit. Those shares, which closed at $14.875 on Tuesday on the New York Stock Exchange, are poised to fall as low as $3 to $5 when trading resumes, traders said.

Mercury on Wednesday blamed Doyle for irregularities that forced it to restate earnings for the last three years.

Joseph Duffy, Doyle’s attorney, denied Mercury’s allegation and told Dow Jones News Service that Doyle left the company because he would “no longer participate in the charade taking place at Mercury Finance.”

A Mercury spokesman declined to comment on Duffy’s statement.

The Securities and Exchange Commission, the FBI and the U.S. attorney in Chicago declined to comment on Mercury. Illinois regulators said they received a letter from the SEC in January 1995 in which the agency said it was investigating the company.

The disclosure of the accounting problems prompted three shareholder lawsuits against the company and its top officers. In a suit seeking class-action status in New York, Mercury shareholders complained that the errors would reduce shareholder equity by $90 million to $263 million.

Mercury Finance may be in complicity in the misstated earnings, said Marian Rosner of Wolf Popper, the lead lawyer representing shareholders. She cited a $4-million performance bonus to John Brincat, chairman, president and chief executive.

The company’s top officers sold millions of dollars of the company’s stock last June, according to CDA/InvestNet, a Florida firm that tracks insider sales.

Mercury and other sub-prime lenders provide financing for people who can’t get money elsewhere. These companies typically charge higher rates for purchases ranging from boats to plastic surgery.