PwC ordered to pay $625.3m over failure to detect Colonial Bank fraud

PwC ordered to pay $625.3m over failure to detect Colonial Bank fraud

A US federal judge found that as auditor PwC was negligent and failed to detect £2bn fraud which spanned several years

PwC ordered to pay $625.3m over failure to detect Colonial Bank fraud

A federal judge in the US has ordered PwC to pay $625.3m (£473.2m) in damages to the Federal Deposit Insurance Corp (FDIC) over its failure to detect over $2bn fraud at Alabama’s Colonial Bank.

The bank collapsed in 2009, becoming the sixth largest bank failure in US history.

As Colonial’s receiver, the FDIC incurred a cost of $2.8bn after the bank’s collapse and brought a negligence claim against the Big Four firm.

In January US District Judge Barbara Rothstein said that as auditors of parent company Colonial BancGroup PwC was negligent and failed to perform adequate checks that could have uncovered the multi-billion-dollar fraud which spanned 2002-2009.

After considering the firm’s liability for damages, on Monday Judge Rothstein said that it was more likely than not that PwC’s negligence was the proximate cause of FDIC damages and therefore ordered them to pay $625.3m.

The court found that PwC did not design its audits to detect fraud, which constituted a violation of auditing standards.

Phil Beck, an attorney for PwC US, told Bloomberg that the firm intended to pursue an appeal, pointing to the court’s previous findings that “numerous employees at Colonial actively and substantially interfered with our audits.”

The fraud involved Colonial Bank’s largest client, mortgage company Taylor, Bean & Whitaker, continually overdrawing its bank account and covering it up by conspiring with some bank employees to fraudulently sell Colonial mortgages that had already been sold.

Both Colonial Bank and Taylor Bean went into bankruptcy in 2009 as the fraud was uncovered.

Several senior executives at the mortgage company and bank were found guilty in the conspiracy were subsequently jailed, and Taylor Bean’s founder and chairman Lee Farkas is currently serving a 30-year sentence.

Meanwhile, in March Taylor Bean Whittaker’s auditor Deloitte was ordered to pay $149.5m (£108.4m) by the US Department of Justice.

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