Banking

$5.5 billion lawsuit against PwC, the largest ever, settled in Miami court

Colonial Bank in Miami Beach, on August 17, 2009, days after it failed. The bank’s fraud with Taylor, Bean & Whitaker is the subject of a lawsuit against its auditor, PricewaterhouseCooper, which allegedly failed to catch the fraud for seven years. The case settled in Miami-Dade County Circuit Court Friday.
Colonial Bank in Miami Beach, on August 17, 2009, days after it failed. The bank’s fraud with Taylor, Bean & Whitaker is the subject of a lawsuit against its auditor, PricewaterhouseCooper, which allegedly failed to catch the fraud for seven years. The case settled in Miami-Dade County Circuit Court Friday. Miami Herald

A $5.5 billion lawsuit against Big Four firm PwC, the largest lawsuit ever against an auditing company, settled in Miami-Dade County Circuit Court for an undisclosed amount Friday.

The suit, brought against PwC by a trustee of the defunct Taylor, Bean & Whitaker Mortgage Corporation, was the latest in a series of suits against major auditing firms in recent years, most alleging faulty work.

The case was settled “to the mutual satisfaction of the parties,” said Bruce Rubin, a spokesman for the plaintiff, three weeks since going to trial.

The PwC lawsuit was filed in 2013 by a trust formed following the bankruptcy of Ocala-based Taylor, Bean & Whitaker, which in the early 2000s was one of the nation’s largest mortgage companies. The firm was raided by federal agents in 2009 for its part in a seven-year, multibillion-dollar fraud scheme with Colonial BancGroup.

According to the lawsuit, the fraud went undetected by PwC, the independent public auditor in charge of auditing Colonial, as a result of “gross negligence.” But PwC, which has offices in Brickell, maintained in court documents that it was duped by collusion among top executives at Taylor, Beach & Whitaker and Colonial.

Beginning in early 2002, six top executives at Taylor, Bean & Whitaker, including chairman Lee Farkas, colluded with two executives at Colonial to sign off on mortgage sales that didn’t exist. Colonial financed Taylor, Bean & Whitaker’s mortgages, but in order to bypass the federal lending limit, Colonial started registering loans from the mortgage company as sales instead.

Circumventing the lending limits allowed the fraud to grow exponentially as executives at each company worked to falsify documents and computer entries and shift money between Colonial bank accounts.

Following the raid in August 2009, Farkas was sentenced to 30 years in federal prison and Catherine Kissick at Colonial, who worked most closely with Farkas, received eight years in prison as part of a plea deal.

The fall of Colonial and Taylor, Bean & Whitaker resulted in the sixth-largest banking failure in U.S. history.

PwC paid $65 million last year to settle similar claims after the collapse of MF Global Holdings Ltd. The auditing firm is also facing two suits filed by a Colonial BancGroup trustee and the Federal Deposit Insurance Corp. in federal court in Alabama. The cases are scheduled for trial in February 2017.

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