By Andrew Irumba
Price Water House Coopers LLP must pay $625.3 million in damages for failure to catch a fraud scheme that helped cause one of the biggest bank failures of the financial crisis, a federal judge ruled on Monday.
A federal judge said Price water house Coopers LLP must pay $625.3 million in damages to the Federal Deposit Insurance Corp for failing to uncover fraud that led to one of the largest bank failures of the global financial crisis.
U.S. District Judge Barbara Rothstein found it more likely than not that PwC’s negligence was the proximate cause of FDIC damages from the August 2009 demise of Montgomery, Alabama’s Colonial BancGroup Inc, once among the 25 largest U.S. banks.
Rothstein said PwC failed to uncover a multi-year fraud between Colonial, its former client, and Ocala, Florida-based Taylor, Bean & Whitaker, once the nation’s 12th largest mortgage lender and a major Colonial customer.
The FDIC sued in its role as receiver for Colonial Bank, which once had more than $25 billion of assets and 340 branches.
Taylor Bean also failed in August 2009. Its former chairman, Lee Farkas, is serving a 30-year prison term for his 2011 conviction on fraud and conspiracy charges.
Rothstein had found PwC liable for negligence in December, after a non-jury trial, and tried the damages issue in March, also without a jury.
PwC had argued that the FDIC could recover $306.7 million at most, and that no damages were justified because numerous Colonial employees had interfered with its audits.
“We intend to pursue an appeal of this matter at the earliest opportunity,” it’s outside lawyer Phil Beck said in a statement provided by PwC.
The FDIC said it does not discuss pending litigation. It previously settled with Colonial’s internal auditor, Crowe Horwath.
On Feb. 28, Taylor Bean’s former auditor Deloitte & Touche LLP [DLTE.UL] agreed to pay $149.5 million to settle U.S. government claims it also missed the fraud.
According to the FDIC, the fraud began in 2002 when Taylor Bean began overdrawing its accounts and Colonial, at Farkas’ urging, began manipulating those accounts to conceal it.
This allegedly included the sale by Taylor Bean to Colonial of mortgages that had already been sold to other investors, and Colonial receiving stakes in mortgages that had no collateral or were in default.
By the time the fraud was discovered, Colonial’s balance sheet included $1.47 billion of mortgage trades that were “fake or otherwise impaired,” Rothstein wrote.
The $625.3 million award covers PwC’s audits of Colonial from 2003 to 2005 and in 2008.
A trial for the 2006 and 2007 audits has not been scheduled because the FDIC did not waive its right to a jury trial.
The case is Federal Deposit Insurance Corp as receiver for Colonial Bank v PricewaterhouseCoopers LLP, U.S. District Court, Middle District of Alabama, No. 12-00957.