Florida Jury To Decide If Auditor Should Have Caught Crisis-era Fraud
The lawsuit against PwC is a test of a recurring question that has faced the auditing industry: whether and when auditors are responsible for detecting fraud
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A state court jury in Florida heard opening statements on Tuesday in a civil trial in which it will have to decide whether auditing firm PricewaterhouseCoopers is partially liable for the collapse of a US mortgage lender in 2009.
The lawsuit against PwC is a test of a recurring question that has faced the auditing industry: whether and when auditors are responsible for detecting fraud.
It would not have taken much for PwC to catch the fraud that brought down lender Taylor, Bean & Whitaker Mortgage Corp, said Steven Thomas, a lawyer for the lender's bankruptcy trust.
"PricewaterhouseCoopers failed to do its job because they relied on unsigned contracts and just needed one phone call," Thomas told the jury in Miami-Dade County Circuit Court.
The trust is seeking more than $5.5 billion in damages from PwC, according to court papers.
In a separate opening statement, a lawyer for PwC said the firm should not be liable because its role was limited.
PwC did not audit Taylor Bean. It did do audit work for Colonial Bank, where Taylor Bean was a major customer. Taylor Bean Chairman Lee Farkas and others hid losses by shuffling money among Colonial accounts and by selling nonexistent or worthless mortgages, according to the suit brought by the Taylor Bean trust in 2013.
An entire department within Colonial was responsible for detecting fraud at the bank, PwC lawyer Elizabeth Tanis said.
"Colonial Bancgroup every year hired PwC to audit its financial statements. Colonial Bancgroup did not hire PwC to conduct a fraud audit," Tanis said.
The jury was scheduled to begin hearing witness testimony later on Tuesday.
Taylor Bean was among the nation's largest privately held mortgage lenders when it filed for bankruptcy in August 2009. The same month, regulators closed Montgomery, Ala.-based Colonial, which left the Federal Deposit Insurance Corp to cover $3.8 billion in losses.
BB&T Corp bought Colonial's assets.
Farkas was convicted of fraud charges and sentenced to 30 years in prison.
Taylor Bean's auditor, Deloitte & Touche, and the bankruptcy trustee reached a confidential settlement in 2013.
PwC and audit firm Crowe Horwath face a separate lawsuit in Alabama federal court in connection with Colonial's collapse. They have denied the allegations, and a trial is scheduled for February 2017.