lawsuit photoPricewaterhouseCoopers is facing another lawsuit for $5.5 billion from a defunct mortgage company: Taylor, Bean and Whitaker’s creditors and investors. They claim that the firm failed to uncover fraud at failed Colonial Bank of Montgomery in Alabama.
The fraud was orchestrated by executives of the Bank and the Mortgage firm and was estimated to be around $21 billion. The employees responsible for these frauds have already been convicted and are serving prison terms.
The issue was that Taylor Bean was one of Colonial’s biggest customers and when it began having financial difficulties the executives at Taylor Bean worked out a deal with Colonial where Taylor would use improper overdrafts to meet its expenses and payroll. That later became a scheme where Colonial was buying billions of dollars in fake mortgages from Taylor Bean.  The fraud came to light when one of Colonial Bank’s employees went to the FBI.
PWC did seven audits of the bank over the years when the scheme was going on. The question is whether it is gross negligence on part of PWC. Can an audit firm be liable to finding fraud when the fraud is being done and well kept by a few executives of the company? Fraud is definitely very hard to detect, but over seven years could someone have detected it! Would like to hear your thoughts.
Photo by thinboyfatter