Judge Rules PwC Negligent in Crisis-era Bank Failure, Says Firm Missed $2B Fraud

By:
Chris Gaetano
Published Date:
Jan 2, 2018
PWC

A federal judge has ruled PricewaterhouseCoopers was negligent in failing to detect a $2 billion fraud scheme at a bank client, which was a major factor in its collapse during the height of the global financial crisis, according to the Wall Street Journal. The bank, Colonial, had Taylor Bean & Whitaker Mortgage Corp., one of the largest mortgage corporations in the country, as a major customer. The mortgage company had been hiding cash shortfalls by continually overdrawing its account with Colonial, and covering that up through selling the bank thousands of mortgages that had already been sold to other investors. The bank filed for bankruptcy shortly after the scam collapsed, which in turn cost the Federal Deposit Insurance Corporation (which is the entity that sued PwC) billions of dollars. 

The FDIC contended that PwC could have detected the fraud much earlier, but instead gave Colonial clean audits year after year, and violated auditing rules to do so. The judge agreed, saying that PwC could have uncovered the fraud simply by inspecting some of the underlying documents for the mortgages at issue, but didn’t.

The case will now go to the damages phase, where PwC could potentially be liable for hundreds of millions of dollars. 

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