PwC has settled a lawsuit brought against it over one of the biggest bank collapses in US history, in a landmark case that shone a light on the responsibility of auditors to detect fraud.
The world's biggest professional services firm by annual revenues had been accused of failing to catch a multibillion-dollar conspiracy between executives at Taylor, Bean & Whitaker, a defunct mortgage lender, and counterparts at Colonial Bank, an Alabama-based lender that supplied TBW with loans.
PwC gave the bank’s parent, Colonial BancGroup, a clean audit opinion for six years until it collapsed in 2009, when it emerged that huge chunks of its loans to TBW were secured against assets that did not exist. The plaintiff, the bankruptcy trustee of TBW, had been seeking $5.5 billion plus punitive damages, in the biggest accounting negligence lawsuit ever to go to trial.
The decision to settle – for a confidential sum – came four weeks into proceedings in a state court in Miami.
“The case was settled to the mutual satisfaction of the parties,” said a PwC spokesperson.
Steven Thomas, lead trial lawyer for the plaintiff, declined to comment on Friday's settlement. But speaking broadly, he told the Financial Times: "The history that has happened here over the last few years, and the fallout of the Great Recession, has shown that what auditors do, matters. Auditors owe ultimate allegiance to the investing public; I think that is becoming more and more clear."
A separate lawsuit filed against PwC by the Federal Deposit Insurance Corporation, the regulator, and Colonial's bankruptcy trustee is pending in Alabama federal court.
Mr Thomas’s team had claimed that PwC was in a position to catch and stop the fraud but missed multiple red flags. In its opening statements, PwC countered that no auditor can reasonably be expected to catch a well-organised and determined fraud.
Last year, PwC agreed to pay $65 million to settle a separate lawsuit claiming it failed to properly audit MF Global’s internal controls before its collapse.
– (Copyright The Financial Times Limited 2016)
