The fraud, which the accounting firm missed in its audits, led to one of the biggest bank failures in US history
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A national accounting firm must pay $625.3 million to the Federal Deposit Insurance Corporation for failing to detect a $2.3 billion mortgage fraud that lead to the collapse of a bank.
Federal judge Barbara Rothstein ruled that PwC’s inability to detect the fraud during an audit contributed to the 2009 collapse of Colonial BancGroup in 2009, causing the FDIC to absorb losses. Rothstein said that PwC was negligent in reviewing Colonial’s financial statements from 2002 to 2008, according to The Winston-Salem Journal. She said that the $625.3 million “calculation of damages … is reasonably certain and amply supported by reliable evidence.”
Colonial Bank collapsed after buying loans from mortgage company Taylor Bean & Whitaker. PwC, which audited Colonial, failed to spot a continuing fraud scheme by executives at both the bank and the mortgage company. Instead, the fraud was discovered by regulators and both Taylor Bean and Colonial collapsed in 2009.
Colonial became one of the largest bank failures in US history. Its collapse cost the FDIC’s insurance fund about $4.2 billion, according to a Bloomberg report.
Taylor Bean, once one of the largest mortgage lenders in the US, also saw six of its executives convicted and imprisoned for their roles in the scam. Former Taylor Bean chairman Lee Farkasa was sentenced to 30 years in prison.
PwC said it shouldn’t be held liable, since scam conspirators at Colonial actively tried to hide the fraud.
“PwC is disappointed by the ruling, and we don’t believe the FDIC is entitled to the recovery of any damages in this case in light of the court’s prior findings that numerous employees at Colonial actively and substantially interfered with our audits,” the firm said. “We intend to pursue an appeal of this matter at the earliest opportunity.”
Lawyers for the FDIC, however, claimed that PwC let inexperienced accountants, including an intern, review Colonial’s financial statements.
