On Friday, in a Miami courtroom, defendant PwC settled a $ 5.5 billion lawsuit midway through a six-week trial. Up for discussion: the global auditor’s alleged failure to catch massive fraud in Florida that led to the sixth largest bank failure in US history.
PwC (PricewaterhouseCoopers, as it was once called) was the Colonial Bank’s auditor. The Alabama bank broke into bad news mortgage deals with an Ocala lender called Taylor, Bean & Whitaker. The company has grown from nothing to become the 12th largest mortgage lender in the nation in the hands of Lee Farkas, a con man with a love of sports cars and corporate jets.
Long story in short? The FBI raided Taylor Bean’s Ocala headquarters in 2009 shortly after the mortgage company agreed to take control of Colonial Bank, the much larger but struggling Taylor Bean’s main lender.
Taylor Bean would soon be done with more than 1,000 workers losing their jobs. Farkas is still at the beginning of a 30-year prison sentence for fraud in a medium-security prison in Butner, NC Colonial Bank has gone bankrupt, forcing the Federal Deposit Insurance Corp. agency.
From 2002 to 2008, PwC auditors gave Colonial Bank good health until the bank collapsed. CNBC TV’s business crime series American greed devoted an episode to this complex financial mess in the summer of 2012.
Which brings us back to where we started. Why did PwC decide to settle in the middle of the Miami trial?
PwC isn’t talking, but it’s a good bet that things didn’t look promising in the courtroom. A $ 5.5 billion “gross negligence” lawsuit isn’t just a large number. It is the largest lawsuit ever filed against an auditing firm.
“Year after year, Pricewaterhouse hasn’t done its job, hasn’t followed the rules and failed to detect the fraud,” said Steven Thomas, an attorney at Taylor Bean’s trustee, in this month’s opening statements.
Better than PwC bite the bullet on a smaller (and confidential) amount.
But PwC has certainly kept in mind the fate of one of its now deceased peers. Audit giant Arthur Andersen, formerly one of the nation’s “Big Five” accounting firms, once claimed Texan energy company Enron as a client. In the wake of a now notorious accounting scandal, Enron filed for bankruptcy. Andersen went so far as to destroy Enron’s audit documents, part of an effort to cover billions of Enron’s losses.
In 2002, Arthur Andersen gave up his licenses to practice as a chartered accountant after being found guilty of criminal charges.
In PwC’s civil lawsuit, Taylor Bean’s trustees claim that Colonial Bank bought $ 1 billion worth of bogus paper-made assets from mortgage company Ocala with help from Colony executives. Yet PwC said Colonial Bank was in excellent shape. Until the bank went bankrupt.
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So what exactly were the PwC auditors doing? Maybe we will know more soon.
PwC still faces two lawsuits that will be tried early next year by a trustee from Colonial Bank and the FDIC.
Contact Robert Trigaux at [email protected] Follow @venturetampabay.