PwC sued for $5.5billion for negligence in mortgage fraud case
What's the story
The bankruptcy trustee for Taylor, Bean & Whitaker sued PricewaterhouseCooper as the auditor of Colonial Bank, seeking $5.5 billion in damages. The trustee alleged in a 2013 suit that PwC did not detect a massive fraud that brought down Taylor, Bean & Whitaker and triggered the 2009 collapse of Colonial Bank. The trial began on August 9 and is expected to last six weeks.
Company Profile
PricewaterhouseCoopers
PwC is a multinational professional services network which was formed in 1998 by a merger between Coopers & Lybrand and Price Waterhouse. It is the world's largest professional services firm and is one of the Big Four auditors, along with Deloitte, EY and KPMG. As of 2016,PwC is the 5th-largest privately-owned organization in the US and has a network of firms in 157 countries.
Scam
Colonial Bank under scanner
Colonial Bank was the fifth largest commercial bank in Florida and 27th largest commercial bank in US. In 2002,Farkas of Taylor, Bean&Whitaker sent mortgage data to Colonial Bank for loans that didn't exist or that they had already committed to other investors. In 2007, the scheme which involved Colonial Bank executives, consisted of about $1.5 billion in fake or severely impaired residential mortgage loans.
Losses
Consequences
Taylor Bean, once the 12th-largest US mortgage lender, collapsed after federal regulators uncovered a $3 billion scheme involving fake mortgage assets. Six Taylor Bean executives were convicted and jailed, including former chairman Lee Farkas, who was sentenced to 30 years in prison. Colonial Bank, which became the sixth-largest bank failure in US history, cost the Federal Deposit Insurance Corp.'s insurance fund about $4.2 billion.
Information
Pointing fingers at Deloitte
PwC pointed out that Deloitte & Touche, which audited Taylor Bean for the 7 years leading up to its collapse, never uncovered any wrongdoing. Deloitte reached confidential settlements with the trustee in 2013 to settle three lawsuits.
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PwC's response
Beth Tanis, PwC lawyer, said,"According to professional audit standards, even a properly designed and executed audit may not detect fraud, especially in instances of collusion, document fabrication and control override, like at Colonial Bank. We are confident that the jury will understand and decide accordingly."