Late last week, a federal judge determined that accounting giant PricewaterhouseCoopers (PwC) was negligent in its auditing of Colonial Bank, the Alabama institution that failed in 2009 in the midst of the financial crisis. Colonial failed as a result of a $2 billion fraud orchestrated by Florida-based mortgage lender Taylor Bean & Whitaker, a major Colonial customer, which was cooking its books to cover for hundreds of millions in nonexistent mortgages. PwC would have uncovered the fraud at its inception if it had simply pulled individual mortgage documents to verify that Taylor Bean was actually putting up collateral for its loans. Instead, PwC assigned a college intern to audit the $589 million Colonial account.
The lawsuit against PwC was brought by the FDIC, which had to pay $2.8 billion to cover Colonial’s collapse. In her judgment, federal district court judge Barbara Jacobs Rothstein said PwC failed to perform adequate checks to determine that Colonial’s financial statements were fairly stated. Following the ruling, PwC noted that the judge rejected four of the five main claims made by the plaintiffs, and that numerous employees at the bank “actively and substantially interfered” with its audit.
This isn’t the first time that PwC has been forced to account for its auditing failures in connection with Colonial. In August of 2016, PwC settled a $5.5 billion lawsuit brought against it by Taylor Bean’s bankruptcy trustee. And, earlier that year, accounting firm Deloitte & Touche reached a settlement with Freddie Mac over similar allegations of gross negligence in connection with that firm’s audits of Taylor Bean.
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