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发帖数: 29846 | 1 http://online.wsj.com/articles/accounting-firm-must-face-fdic-s
A federal judge said PricewaterhouseCoopers LLP must face the Federal
Deposit Insurance Corp.'s $1 billion lawsuit that alleges the accounting
firm failed to catch the massive fraud that brought down Colonial Bank, one
of the largest bank collapses in U.S. history.
Judge W. Keith Watkins of the U.S. District Court in Montgomery, Ala., said
Tuesday that the FDIC's theory that the auditor's failure to uncover the
fraud was "plausible" enough to allow the suit to survive. It was the second
legal setback in as many weeks for the accounting firm.
"FDIC's theory is that the defendants failed to discover existing fraud at
the time of their auditing services, which permitted the continuation of the
fraudulent scheme, albeit through different means," Judge Watkins wrote in
a six-page order. "It is plausible that the defendant auditors should have
reasonably anticipated that a general fraudulent scheme would continue if
their allegedly faulty auditing services failed to detect existing
wrongdoing."
The FDIC, as the receiver for the failed Alabama bank, sued PwC and fellow
accounting firm Crowe Horwath LLP for failing to detect the long-running
fraud at Colonial's largest client, Taylor Bean & Whitaker Mortgage Corp.
The FDIC lawsuit, which already survived an earlier legal challenge from the
accounting firms, blames the auditors for missing "huge holes in Colonial's
balance sheet" and other serious gaps without ever detecting the
multibillion-dollar fraud at Taylor Bean.
The Taylor Bean fraud "would have been prevented had PwC and Crowe properly
performed their audits in compliance with applicable professional standards,
" said the FDIC's lawyers in the suit.
PwC and Crowe Horwath have denied any wrongdoing.
A PwC spokeswoman wasn't immediately available for comment Wednesday, but
the accounting firm's lawyers have previously argued the FDIC's suit is
without merit because Colonial's own management and largest customer—Taylor
Bean—lied to regulators, internal auditors and to PwC itself. Crowe
Horwath spokeswoman Amanda Shawaluk said the firm believes that all claims
against Crowe are totally without merit.
The FDIC has been left with remnants of hundreds of failed banks in recent
years, the result of the wave of bank closures by regulators in the
aftermath of the bursting of the housing bubble. Although the FDIC transfers
a failed bank's deposits to a stronger company—to BB&T Corp. BBT -1.15%
(BBT) in Colonial's case—it is left as a receiver for what remains.
The collapse of Colonial, which had $25 billion in assets and $20 billion in
deposits, was the biggest bank failure of 2009. The regulator estimates
Colonial's failure will ultimately cost its insurance fund $5 billion,
making it one of the most expensive bank failures in U.S. history. The FDIC,
however, hadn't made a point of targeting the professional firms who
advised the failed banks until filing the original Colonial lawsuit in 2012.
The mastermind behind the fraud at Taylor Bean was the company's top
executive, 61-year-old Lee Farkas, who is now serving a 30-year prison
sentence in North Carolina for orchestrating the seven-year fraud that
pumped a pile of bad loans into what appeared to be billions of dollars of
assets.
His scheme involved Colonial "purchasing" mortgage loans from Taylor Bean
that already had been sold to other investors, such as Freddie Mac. He wasn'
t caught until after federal authorities raided Colonial's and Taylor Bean's
offices in August 2009.
Mr. Farkas, whom federal prosecutors described as a "consummate fraudster,"
was convicted in the spring of 2011 of misappropriating about $3 billion and
trying to fraudulently obtain more than $550 million from the government's
Troubled Asset Relief Program in a failed effort to prop up Colonial. |
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