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.

Whitepaper

The Future of Finance is in the CFO's Hands

Business The Future of Finance is in the CFO's Hands

1m
Save a Week a Month Consolidating Accounts

Accounting Software Save a Week a Month Consolidating Accounts

2m
Mitigating Risk Through Internal Control

Legal Mitigating Risk Through Internal Control

3m
Could tax season have run more efficiently?

Corporate Tax Could tax season have run more efficiently?

3m

Related Articles

Goldman Sachs chooses Mazars for audit – but does it really matter?

Audit Goldman Sachs chooses Mazars for audit – but does it really matter?

3d Tom Lemmon
KPMG UK announce new audit structure – but is it enough?

Audit KPMG UK announce new audit structure – but is it enough?

1w Tom Lemmon
Will Deloitte get 5-year ban in India?

Audit Will Deloitte get 5-year ban in India?

3w Tom Lemmon
The CMA has released its final report into the future of the audit market

Audit The CMA has released its final report into the future of the audit market

1m Beth McLoughlin, Managing Editor
The madness of audit independence

Audit The madness of audit independence

1m Clive Viegas Bennett, CEO of MGI Worldwide
Life after BHS, Carillion, & Patisserie Valerie: Is there light at the end of the tunnel for audit?

Audit Life after BHS, Carillion, & Patisserie Valerie: Is there light at the end of the tunnel for audit?

1m Lucy Skoulding, Reporter
Audit vs R&D: “There is a clear conflict which accountancy firms aren’t dealing with”

Audit Audit vs R&D: “There is a clear conflict which accountancy firms aren’t dealing with”

2m Beth McLoughlin, Managing Editor
Top accounting scandals in 2018

Audit Top accounting scandals in 2018

2m Virginia Blackburn