FDIC Piles On To PwC For Colonial Bank Failure
I have a new column over at Forbes about the two law suits – one private, one by the FDIC – against PwC for professional malpractice and breach of contract for the Colonial Bank failure. The FDIC case is also interesting because the regulator is suing Crowe Horwath, Colonial Bank’s internal audit co-source vendor.
The FDIC piled on to PwC’s woes after customers of MF Global amended their complaint – the bankruptcy Trustee has transferred claims against the auditor to the private litigants – and are now suing PwC for professional malpractice and breach of duties, too. More on the MF Global lawsuit against PwC in a later post. For now, enjoy, “The Tale of Two Lawsuits – PwC and Colonial Bank” at Forbes.
One group of highly successful PricewaterhouseCoopers partners are looking at a $1 billion dollar plus payday from consulting to the big banks on the independent OCC/Fed foreclosure reviews. I wonder how they feel knowing their profits will be used to pay three big settlements for audit failures at Colonial Bank and MF Global?
…Last week the FDIC filed suit against Colonial Bank auditor PwC, and internal audit co-source vendor Crowe Horwath, for professional malpractice and breach of duties. This is the first FDIC suit against an auditor for financial crisis era bank frauds or failures.
Alison Frankel of the Thomson Reuters On The Case blog reports:
On Wednesday the FDIC, as receiver for the Colonial Bank of Montgomery, Alabama, suedPricewaterhouseCoopers and Crowe Horwath in federal court in Montgomery, claiming that they committed professional malpractice and breach of contract by failing to detect that two Colonial employees helped the notorious (and defunct) mortgage lender Taylor Bean poke hundred-million-dollar holes in Colonial’s balance sheet. (PwC was the external auditor and Crowe Horwath performed internal audits.)
Alison is kind enough to point out that I started looking for the FDIC suits against auditors almost two years ago, based on an article written by two lawyers who are typically in the defense side of these cases.
Way back in February 2011, the crackerjack blogger Francine McKenna of re: The Auditors asked an interesting question in a column for Forbes: Given the widespread failures of small and regional banks in the financial crisis, why hadn’t the Federal Deposit Insurance Corporation brought any lawsuits against the audit firms that signed off on reports that turned out to be materially misleading? McKenna noted that two private lawyers had predicted such suits were coming in a column for the Legal Intelligencer, but said so far none had been filed. By then the FDIC was actively pursuing directors and officers of failed banks, but auditors seemed to be off the hook.
So, why now and why this case?
There’s been a clear cut fraud and executives have already been convicted. But, instead of those facts making it a slam-dunk against the auditors, the guilt of the executives may give auditors the in pari delicto defense. The FDIC seems to have anticipated that.
It’s ironic this issue of re: The Auditors arrived in my mailbox today. I’m doing CPE Direct from the AICPA which includes a chapter on “Ethical Guidance for CPA’s.” Here are some quotes of what I read today:
“As Certified Public Accountants, our ethical behavior is crucial to maintaining the faith that the public has placed in our profession.”
“The AICPA adopted the ethical standards because a distinguishing mark of a profession is an acceptance of responsibility to the public.”
Oh.. really. Is it a joke? Denial to the max? A poor attempt to keep the lower CPA levels in a cloud of ethics while the big firms that control the organization disdain any such silliness?
That aside, I wonder what would be different in the pursual of justice against the accounting industry were Francine not keeping the flame going.