Some big news was released in the final days of 2017 regarding PwC’s role in the Colonial Bank audit. If you pay attention to our website or our podcast, you know that PwC has faced a lot of liability with regard to the Colonial bank audit which was tied up with PwC’s audit of taylor bean where they faced billions of dollars in liability.
PwC’s name was dragged through the mud in that case as it seemed like they did limited to no work in that audit. They were initially sued by the bankruptcy trustee for colonial bank and taylor bean. After a few months of terrible litigation for PwC they were eventually able to settle for an undisclosed amount.
Now it seems that PwC faces even more liability from this Colonial Bank audit.
Background of the PwC Colonial Bank Case
The background of the case was the Colonial bank was a bank that was based out of Alabama that was audited by PwC from 2002 to 2009.
Colonial bank bought 100’s of millions of dollars of mortgages from Taylor Bean that taylor bean didn’t own or had pledged to other lenders. There was an individual at Colonial Bank named Catherine Kissick who helped Taylor bean perpetrate the fraud.
Colonial bank also had many other failed investments and strategies other than the fraud perpetrated by this individual.
The latest liability that PwC faces comes from the FDIC who had to pay out deposit holders who lost their money from the collapse of Colonial Bank.
What PwC alleged
PwC alleges that auditors aren’t insurers under accounting rules. They alleged that even accountants can not detect all fraud even if an audit is well planned. Therefore, PwC shouldn’t have to back up the FDIC if the FDIC has to support a bank failure.
What the FDIC alleged
The FDIC alleges that PwC’s negligence was so blatant that they do hold some responsibility for not alerting others to what was going on at Colonial bank. If PwC had properly planned their audit, they could have easily detected this fraud. The FDIC stated that if PwC just sampled some mortgages at Colonial bank they would have detected the fraud.
This court case has been delayed by over a month because of the judges review of the threshold of liability in the case.
What did the judge find
The judge found that PwC was negligent in connection with the audit of Colonial bank. This opens up PwC to 100’s of millions of dollars in damages. The court alleges that PwC violated auditing rules and didn’t take steps that could have detected a $2 billion fraud scheme that contributed to the 2009 failure of Alabama’s Colonial Bank, the judge ruled.
The ruling Thursday came in a lawsuit brought against PwC by the Federal Deposit Insurance Corp.
U.S. District Judge Barbara Jacobs Rothstein will now consider separately whether damages should be imposed on PwC, and how much.