Editor: Vladimir Bajic | Tactical Investor
An Audit Firm on trial for not spotting $2.9bn fraud
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The biggest ever trial of an audit firm has a lot of lurid elements: a $2.9bn fraud, carried out over years, in which cash was looted to pay for a corporate jet, a seaplane and a vintage car collection. But the jury is basically being asked to answer a simple question: did PwC do all that it could to stop it? A verdict from a Miami jury against the defendant, PwC, could be a reputational and financial blow to the US arm of the world’s biggest professional services firm. It could also embolden others to pursue claims against auditors, which have largely escaped the heavy penalties paid by banks, brokers and other intermediaries in the wake of the financial crisis.
It is telling that PwC is contesting the case at all, rather than settle, says Jim Peterson, a former Arthur Andersen partner who has written a book questioning the ability of global audit firms to withstand big shocks. “[The trial lawyer] has set a figure, his take-it-or-leave-it figure, that is above PwC’s pain tolerance,” he says. “That forces them to go to trial. You can be certain they’d passionately not want to.” According to the action, which has been brought by the bankruptcy trustee of Taylor, Bean & Whitaker, once the largest non-bank mortgage lender in the US, PwC was negligent when it signed off on six years of accounts from Colonial Bank, an Alabama-based lender which had a big business providing short-term, secured financing to mortgage originators. Full Story
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