PricewaterhouseCoopers failed for seven years to detect the fraud that led to Taylor Bean’s collapse, a lawyer for the lender’s bankruptcy trustee said Tuesday.
The trial revolves around PwC’s work for Colonial Bank, which bought mortgages originated by Taylor Bean, according to a Bloomberg report. Attorneys for the trustee maintain that if PwC had adequately vetted documents provided by Taylor Bean, it would have spotted a continuing fraud scheme by executives at both firms far earlier. Instead, the fraud was discovered by regulators in 2009 and Taylor Bean and Colonial went bankrupt, Bloomberg reported. The bankruptcy trustee is seeking $5.6 billion in damages.
“Year after year, Pricewaterhouse didn’t do their job, they didn’t follow the rules and they failed to detect the fraud,” attorney Stephen Thomas said in an opening statement.
This isn’t the first lawsuit over the collapse of Taylor Bean and Colonial. Taylor Bean’s accountant, Deloitte & Touche, faced similar allegations three years ago and settled for an undisclosed amount, according to Bloomberg. Nor is it the first time PwC has been accused of negligence; last year, the firm agreed to a $65 million settlement over claims involving the collapse of MF Global Holdings.
In this case, PwC insists it stuck to auditing standards. Taylor Bean, PwC maintains, is responsible for its own losses.
“Remember, Taylor Bean’s owner and half of its board of directors were criminals,” said Beth Tanis, an attorney for PwC. “They didn’t rely on Pricewaterhouse’s audit report because they knew about the fraud they were committing.”
Taylor Bean was once the 12th-largest US mortgage lender, according to Bloomberg. It collapsed after federal regulators discovered a $3 billion fraud scheme involving phony mortgage assets. Six of the company’s executives, including former chairman Lee Farkasa, were convicted and imprisoned for their roles in the scam. Farkas was sentenced to 30 years in prison.
Attorneys for the trustee maintain that PwC failed to spot the fraud when it audited the books of Colonial Bank’s parent company, Colonial BancGroup – even though Taylor Bean was the bank’s largest client, Bloomberg reported. PwC is accused of certifying fake mortgages as “true sales” to Colonial – and of trying to cover up its negligence when regulators questioned its numbers.
Colonial Bank became the sixth-largest bank failure in US history, according to Bloomberg. Its collapse cost the FDIC’s insurance fund about $4.2 billion.
A multibillion-dollar fraud trial over the demise of mortgage company Taylor Bean & Whitaker got underway this week in Miami.