Virtual Mortgage Sues Over Failed IPO

An Orange County mortgage company that attempted to go public two years ago has filed a lawsuit accusing an accounting firm and a law firm of torpedoing the offer by withdrawing their services.

The suit, filed by Virtual Mortgage Network Inc. of Newport Beach in Orange County Superior Court, alleges Arthur Andersen failed to complete audits that would have allowed its public offering.

Andersen’s withdrawal of services 19 days before the scheduled stock offering forced the company into insolvency, costing investors more than $21 million, the suit contended.

The suit also said that law firm O’Melveny & Myers failed to advise Virtual Mortgage after Arthur Andersen withdrew its services.

Dick Poladian, an Andersen managing partner, said there is no basis for the suit and defended the firm’s decision to withdraw its services.

Ralph Shapira, a partner at O’Melveny, called the suit frivolous.

Virtual Mortgage, which arranged home loans via videoconferencing, had hoped to raise $40 million by going public June 30, 1998.

The suit seeks $500,000 in fees to Andersen, $800,000 in fees to O’Melveny, investor losses, legal costs and unspecified damages for alleged professional neglect and fraud. It also seeks class-action status.