Albany, N.Y. (May 27, 2004) -- PricewaterhouseCoopers agreed to pay $50 million to settle claims from a class-action securities fraud lawsuit brought by New York State relating to the firm’s role as outside auditor of Raytheon Co.
The deal comes on the heels of a settlement announced earlier this month, in which Waltham, Mass.-based Raytheon agreed to pay $210 million in cash and $200 million in warrants to settle the claims against it and its former executives, including former chairmen and chief executives Dennis J. Picard and Daniel P. Burnham, in the same action. If approved, the New York State Comptroller’s Office said that the $460 million total settlement would be the sixth largest settlement in securities class-action history.
New York State Comptroller Alan G. Hevesi said that the settlement “sends a strong message to auditors and other gatekeepers that they will be held to a high level of accountability and integrity in matters that impact the investing public.”
The complaint alleged that PwC, Raytheon’s long-time outside auditor, turned a blind eye to the company’s improper accounting practices and issued a clean audit opinion on the company’s 1998 financial statements despite numerous red flags. The complaint also alleged that PwC’s clean audit opinion was materially false and misled investors by keeping the value of Raytheon’s stock artificially inflated. When the company eventually disclosed its true financial state, its stock plummeted, and investors lost hundreds millions of dollars.
The suit also claimed that PwC’s independence was compromised by a lucrative contract for non-audit consulting work that it was trying to win from Raytheon shortly before it issued the clean opinion.
A PwC spokesman said the firm stands behind its work, adding, "We recognize that lawsuits of this nature and the need to settle them in order to avoid the cost and distraction of protracted litigation are unfortunate realities in today's business environment."
-- WebCPA staff
