PricewaterhouseCoopers has reached a settlement in a multibillion-dollar lawsuit involving the 2009 collapse of Taylor Bean & Whitaker Mortgage Corp.
Trustees for the bankrupt mortgage company sued PwC in 2013 for over $5 billion, claiming that PwC had failed to detect fraud at Taylor Bean during the firm’s audits of Colonial Bank, which bought mortgages originated by the company. Both Taylor Bean and Colonial went bankrupt in 2009 after federal regulators uncovered rampant fraud.
A trial in the case began in Miami earlier this month (see PwC Fights $5.6 Billion Fraud Trial over Taylor Bean’s Collapse). The size of the damages sought by the bankruptcy trustee threatened to undermine PwC, even though the firm pointed out that it never audited Taylor Bean. Taylor Bean’s audit firm, Deloitte, settled with the bankruptcy trustee in 2013 for an undisclosed sum. A half dozen Taylor Bean executives were convicted and sentenced to prison for the fraud.
“PricewaterhouseCoopers did not audit or perform any other services for Taylor Bean,” PwC’s outside attorney, Beth Tanis of King & Spalding, said before the trial got underway. “With regard to the services performed for Colonial Bancgroup, one of the targets of Taylor Bean's fraud, PricewaterhouseCoopers did its job. As the professional audit standards make clear, even a properly designed and executed audit may not detect fraud, especially in instances when there is collusion, fabrication of documents, and the override of controls, as there was at Colonial Bank. We are confident that a jury will understand the applicable rules and standards in this case and decide accordingly.”
The plaintiffs contended otherwise. “PwC missed this massive fraud and the gross errors in Colonial’s financial statements because it repeatedly ignored red flags in conscious and reckless disregard of its public duty as an auditor,” the trustee’s attorneys contended in an amended complaint. “Moreover, all the time that the Looters were carrying out their fraud against TBW, PwC certified the existence of more than a billion dollars of Colonial assets that did not exist, had been sold to others, or were worthless.”
The two sides reached a confidential settlement deal midway through the trial Friday. “The case was settled to the mutual satisfaction of the parties,” said Bruce Rubin, a spokesman for the plaintiff.
"The settlement is confidential," he added.
PwC echoed his statement. “The case was settled to the mutual satisfaction of the parties,” said a spokeswoman for the firm.
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