Deloitte & Touche has been sued by the trustees for a bankrupt mortgage lending company for failing to detect the financial fraud that led to the company’s collapse.
The firm was sued by a bankruptcy trustee for Taylor, Bean & Whitaker Mortgage Corp. and separately by TBW’s Ocala Funding subsidiary on Monday. The trustee suit, brought by Neal Luria, a managing director at Navigant Capital Advisors, is for $6 billion, while the Ocala Funding suit is for $1.6 billion. They accuse Deloitte of certifying Taylor, Bean & Whitaker as “a solvent, viable company with accurate financial statements every year from 2001 to 2008,” according to Reuters.
They claimed that the firm missed the fraud because it accepted management's “conflicting, incomplete and often last-minute explanations of highly-questionable transactions, even though those explanations made no sense and were flatly contradicted by the documents in Deloitte's possession.”
Deloitte gave clean audit opinions for several years, but questioned the treatment of $6 billion in off-balance-sheet transactions in 2008 before signing off on the audit with a short time to go before a midnight deadline, according to the lawsuits. However, the firm resigned as TBW’s auditor the following year.
Deloitte disputed the claims in the lawsuits. “The plaintiffs in these cases, Taylor Bean & Whitaker and Ocala Funding, were the wholly-owned private companies through which convicted felon Lee Farkas and his co-conspirators committed their crimes,” said Deloitte spokesman Jonathan Gandal in an emailed statement. “The bizarre notion that his engines of theft are entitled to complain of injury from their own crimes and to sue the outside auditors they lied to defies common sense, not to mention the law. These claims are utterly without merit.”
Farkas was convicted in April of 14 counts of fraud and sentenced to 30 years in prison (see Ex-Mortgage Lender Chairman Found Guilty of $3 Billion Fraud). Six other Taylor, Bean & Whitaker executives have also pleaded guilty for their role in the scheme, which prosecutors said began in 2002 when executives moved to hide the firm’s losses by secretly overdrawing the company’s Colonial Bank accounts, then covering it up by selling the bank $1.5 billion in “worthless” and “fake” mortgages.
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