In other accounting scandal news in April 2018, PwC faces the largest auditor malpractice verdict ever in the United States.
This verdict might be handed down in the lawsuit of the FDIC vs PwC. The case relates to Colonial Bank which we’ve covered heavily on this podcast. Colonial Bank is the bank that collapsed in Florida and has had PwC tangled up in lawsuits over the past couple of years. Colonial Bank and their affiliate Taylor Bean went bankrupt and both the trustees of those bankruptcies and the FDIC have been after PwC ever since.
The FDIC could be awarded up to $625 million in the lawsuit. The verdict depends on what the Judge Barbara Rothstein determines is reasonable. The FDIC had to make large payouts related to Colonial bank going under, so they are just trying to recover a portion of what they had to pay out. $22 billion of the bank’s deposits were sold to BB&T which is another bank. It is estimated that the FDIC had to pay out in excess of $2 billion to depositors of Colonial bank.
PwC estimates that they will only have to pay out $306 million, but even that amount would be one of the largest payouts ever for malpractice by an accounting firm. This award comes from the decision by a Barbara Rothstein in late 2017 that PwC was negligent in their audit of Colonial bank in 2009.
What does this mean for Pricewaterhousecoopers and the big 4 accounting firms
Taylor Bean and Colonial Bank went bankrupt in the last recession in 2009, and PwC is still facing the ramifications of that 10 years later. Since it appears that we might be facing another downturn in the U.S. soon, PwC needs to be aware that some of their clients might be facing hard times. They need to audit with more tenacity than they are used too otherwise they will be facing large malpractice verdicts again.