An appeals court has overruled $300,000 in penalties levied against accounting firm Grant Thornton in a case involving the firm's audit of the First National Bank of Keystone.

Grant Thornton issued a clean opinion in an audit of the bank's 1997 and 1998 financial statements ordered by the U.S. Office of the Comptroller of the Currency in 1999, but federal regulators discovered that the bank in fact had been insolvent since 1996, according to the Associated Press. Grant Thornton was judged reckless for relying on the bank's verbal statements that it owned $235 million in assets that actually belonged to another bank. However, the appeals court ruling found that because Grant Thornton wasn't part of the bank itself, it could not be held at fault under the law cited by the OCC.

"This opinion represents the correct decision vacating all findings against us and is the correct reading of this provision of the law - a provision that was abused by the OCC in this case in an unwarranted attempt to sanction an accounting firm for merely performing an audit of a banking institution," said a statement by Grant Thornton. "Earlier, their own OCC administrative law judge, Ann Z. Cook, recommended that all charges brought against us be dismissed. She concluded that Keystone's management had perpetrated a pervasive fraud involving the falsification of bank records and other manipulative acts, 'so as to thwart and confuse the work of Keystone's auditors, examiners and even third parties,' and that Keystone's 'management interfered with the audit by providing Grant Thornton with fraudulent bank records.'"

However, Grant Thornton is still being blamed for $24 million in losses the bank experienced in the months leading up to its closure. The firm has been ordered to pay $2.4 million in damages to an executive who was supposed to take over at Keystone after Grant Thornton's audit and later found his reputation had been damaged by his association with the bank. Grant Thornton is appealing the ruling in the executive's case.

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