By our reporter
All is not well with audit firm PriceWaterhouseCoopers (PWC). A US judge has slapped the accounting giant with a record breaking fine $625 million (appro.sh2,437,500,000,000)for their negligence which led to one of the largest banks to collapse in the US state of Alabama. Analysts say, this is one of largest-ever awards for accounting malpractice.
A judge ruled that for failing to catch fraud at the Alabama’s Colonial Bank, PWC slept on the job, which led to one of the biggest bank failures of the financial crisis.
The penalty follows the December ruling in which U.S. District Judge Barbara Jacobs Rothstein found PwC, the outside auditor for Colonial’s bank-holding company, “negligent in not deteching a massive fraud” with its major client. Their negligence led to the collapse of the bank.
Judge Rothstein agreed with the Federal Deposit Insurance Corp., which had sued PwC as the receiver for Alabama’s Colonial Bank, that $625.3 million was the proper level of damages to assess against PwC. That amount was “amply supported by reliable evidence,” she said. PwC had asked the judge to impose damages of less than half that amount.
Speaking for PwC, the audit firm’s lawyer Philip Beck, said the firm was “disappointed” with the ruling, and planned to appeal the decision.
The case stemmed from a fraud scheme at Taylor Bean & Whitaker Mortgage Corp., once of one of the nation’s biggest mortgage companies. Authorities have said Taylor Bean overdrew its account at Colonial for years to cover its own cash shortfalls. Taylor Bean covered that up by, among other things, selling Colonial thousands of mortgages it had already sold to other investors—even as PwC’s audits of Colonial found no problems.
When the fraud was discovered, Taylor Bean filed for bankruptcy in August 2009. This was followed shortly by Colonial’s failure, which cost the FDIC’s deposit insurance fund billions of dollars. Taylor
Bean Chairman Lee Farkas and at least seven other people, including two Colonial employees, were convicted or pleaded guilty to participating in the scheme.
Additional reporting from Wall Street Journal