PwC Sets Accord in Tyco Case
Pact for $225 Million Settles Claims Involving Auditing Malpractice
PwC has decided to settle, pulling a Deloitte, therefore denying us the opportunity to settle once and for all whether they were as “reckless” as a firm as their employee Richard Scalzo.
Interestingly, the WSJ article reminds us that two other high profile cases are still pending with AIG and Dell. It’s an embarrassment that PwC still thinks they can serve as an independent auditor when they are being sued by their clients, the companies’ shareholders.
“Accounting titan PricewaterhouseCoopers LLP agreed to pay $225 million to settle audit-malpractice claims arising from the criminal misdeeds of top executives at Tyco International Ltd., marking the largest single legal payout ever made by that firm and one of the biggest ever by an auditor.…PwC said in a statement that while it was prepared to defend itself against the claims in the case, “the cost of that defense and the size of the securities class action made settlement the sensible choice for the firm.”
Attorneys for Tyco investors said the settlement marked a victory for shareholders. The $225 million payout “sends a message to accounting firms” and will act as a “deterrent to future situations like this,” according to Jay Eisenhofer of Grant & Eisenhofer PA, who represented investors in the case. Tyco declined to comment beyond saying that the agreement had been filed.
The PwC settlement ranks among the top 10 legal payouts made by accounting firms related to work on behalf of one company. Ernst & Young LLP’s $335 million settlement in 1999 related to work for Cendant Corp. remains the biggest-ever payout by an auditor.
…While PwC stood by its work, the firm’s position was potentially undermined when the Securities and Exchange Commission in 2003 barred Richard P. Scalzo, the firm’s lead partner on Tyco’s audits from 1997 to 2001, from audits of publicly listed companies. The SEC didn’t accuse him of deliberately covering up faulty accounting at Tyco, but said he was “reckless” for not heeding warning signs regarding the integrity of the company’s management. Mr. Scalzo didn’t admit or deny wrongdoing…Other high-profile cases the firm has outstanding are suits related to its work for insurance titan American International Group Inc. and computer maker Dell Inc.”