In today’s dispatch from Bizarro World, a mortgage company that lost billions and saw its chairman jailed for massive fraud has sued its auditing firm, saying the firm should have better scrutinized its books.
Deloitte & Touche LLP has settled the suit, brought by Ocala Funding, a wholly-owned subsidiary of Taylor Bean & Whitaker Mortgage Corp., which failed in 2009 after posting some $7.6bn in losses. Deloitte has also settled separate suits brought by Deutsche Bank and a trustee overseeing Taylor Bean’s bankruptcy, according to a Reuters report. The lawsuits had been scheduled to go to trial later this month. The terms of the settlements were not disclosed.
Taylor Bean’s chairman, Lee Farkas, was convicted in 2011 on a range of fraud charges and sentenced to 30 years in prison. According to prosecutors, Farkas covered up the company’s losses through a scam in which Taylor Bean sold phony loans to Alabama’s Colonial Bank and diverted money from Ocala Funding. The fraud -- which eventually led to the collapse of Colonial -- was discovered in a 2009 Deloitte audit, Reuters reported.
Ocala Funding, however, maintained that Deloitte should have discovered its parent company’s fraud sooner.
“Deloitte missed this fraud because it simply accepted management's conflicting, incomplete and often last-minute explanations to highly-questionable transactions,” Ocala’s complaint read.
When the Taylor Bean trustee and Ocala filed their lawsuits in 2011, a Deloitte spokesman ridiculed them as “companies through which convicted felon Lee Farkas and his co-conspirators committed their crimes,” Reuters reported.
“To sue the outside auditors they lied to defies common sense, not to mention the law,” the spokesman said.