By Nicole D. Prysby, J.D.
The FDIC has settled accounting malpractice claims with PricewaterhouseCoopers for $335 million. The claims stem from allegations that the auditor failed to follow required accounting standards in its audit of Colonial Bank in Alabama, and thereby missed a massive fraud between bank employees and a mortgage originator.
On March 15, 2019, the Federal Deposit Insurance Corporation announced a $335 million settlement with PricewaterhouseCoopers LLP (PwC) regarding claims of accounting malpractice brought against PwC over audits of the failed Colonial Bank in Montgomery, Alabama. The FDIC claimed that PwC failed to detect a massive fraud on Colonial Bank, perpetrated by its largest customer, a mortgage originator. Employees of the bank and mortgage originator allegedly enacted a scheme under which the mortgage originator made fraudulent mortgage sales to the bank, in order to cover the mortgage originator’s overdrafts. Martin J. Greunberg dissented from the settlement, citing its failure to include a written admission of liability by PwC.
As previously reported, in December 2017, a federal district court in Alabama held PwC liable for professional negligence in its audit of Colonial Bank. PWC was the independent external auditor for the bank’s holding company, The Colonial BancGroup Inc. PwC audited transactions between the bank and Taylor, Bean &Whitaker Mortgage Corporation (TBW), the bank’s largest customer. According to the federal district judge, PwC failed to detect a fraudulent scheme between bank employees and TBW employees that allowed TBW to make spurious or fraudulent mortgage sales to the bank in order to cover TBW overdrafts. Colonial Bank failed in 2009, with $25.5 billion in assets and a loss to the Deposit Insurance Fund estimated at $2.958 billion. In July 2018, PwC was ordered to pay $625 million to the Colonial Bank receivership.
Martin J. Greunberg of the FDIC Board of Directors released a statement announcing his dissent from the settlement. The statement explains that he voted against authorizing the settlement because it did not include a written admission of liability by PwC. It goes on to assert that, had PwC followed required auditing standards, it would have detected the massive, multi-year fraud and determined that hundreds of millions of dollars of assets claimed by Colonial either did not exist or were worthless. An earlier discovery of the fraud would have limited the damage to Colonial Bank.
Companies: Colonial Bank; The Colonial BancGroup Inc; PricewaterhouseCoopers LLP; Taylor, Bean &Whitaker Mortgage Corporation
MainStory: TopStory AlabamaNews BankingOperations DepositInsurance EnforcementActions
Interested in submitting an article?
Submit your information to us today!Learn More
Banking and Finance Law Daily: Breaking legal news at your fingertips
Sign up today for your free trial to this daily reporting service created by attorneys, for attorneys. Stay up to date on banking and finance legal matters with same-day coverage of breaking news, court decisions, legislation, and regulatory activity with easy access through email or mobile app.