By our reporter
The Federal Deposit Insurance Corp. could collect the largest damage award ever against a global public accounting firm when a federal judge decides what to award the agency after a verdict against Pricewaterhouse Coopers (PwC).
The FDIC, acting as receiver for the failed Colonial Bank Group that collapsed in 2009, has asked Judge Barbara Rothstein to award it $625 million in compensation for the net losses it sustained in paying depositors and other creditors of the bank from the federal deposit insurance fund.
According to market Watch, even PwC’s offer of $306 million would result in the largest-ever final judgment or jury verdict for accounting malpractice, and the fifth-largest accounting malpractice award ever, according to data compiled by research firm Audit Analytics.
Rothstein is not required to accept either version of the damage estimates.
The potential damage award comes after Rothstein issued a decision at the end of 2017 that PwC had been professionally negligent in not detecting the criminal fraud that led to the failure of Colonial Bank Group in 2009.
Taylor Bean & Whitaker and Colonial Bank collapsed in 2009, after federal regulators, not the auditors, found a $3 billion fraud involving fake mortgage assets. In 2012, the trustee of the Taylor Bean & Whitaker Bankruptcy Plan sued both TBW’s auditor, Deloitte LLP, and Colonial’s auditor, PwC, for negligence, seeking $7 billion in damages from Deloitte and $5.5 billion in damages from PwC.
In 2013, just weeks before starting a trial, Deloitte agreed to settle; the parties mutually agreed not to disclose the amount. On August 16, 2016, three weeks into a jury trial for the TBW Trustee’s claims, PwC stopped the proceedings by agreeing to settle. Again, the amount was not disclosed.
This time the public will find out how much PwC has to pay for allegedly not detecting the fraud at Colonial Bank that led to its failure. That’s because federal law prohibits the FDIC from entering into a confidential settlement.
According to a court filing made by PwC after the damages hearing, there was no “junk” loan fraud, given that every warehouse lines lender experienced significant losses from loans it could not sell or securitize because of insufficient or missing documentation and other violations of representations and warranties made by mortgage originators during the financial crisis.
Earlier this week the Auditor General John Muwanga shortlisted top audit firms to investigate Bank of Uganda operations which among others led to the fraudulent takeover of Crane Bank.
Among the five selected firms, it came out that three of them did not qualify for the job due to conflict of interest having been clients of the Central Bank.
The three conflicted firms include the controversial PwC, KPMG and Deloitte and Touche.
For example, BoU contracted PwC to carryout forensic audit on Crane Bank and the firm’s report was used as a basis to file a case against property mogul Sudhir Ruparelia.
The disputed forensic audit report which Sudhir lawyers, Kampala Associated Advocates (KAA), have since called a draft document, was made by Pwc on November 13, 2014.
Meanwhile, early this year, the Securities and Exchange Board of India (SEBI) banned all the firms in the Pricewaterhouse Coopers (PWC) network from auditing listed companies for two years over shoddy work.
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