PwC US has reached a $335m settlement with the Federal Deposit Insurance Corporation (FDIC) related to professional negligence in the audits of the collapsed Colonial Bank.
Colonial Bank collapsed in 2009, in part due to fraud perpetrated by one of the bank’s customers Taylor, Bean & Whitaker Mortgage Corporation (TBW) and some Colonial Bank employees. The fraud consisted of TBW overdrawing on its accounts at Colonial Bank which it then covered up by selling mortgages to Colonial bank which it had already sold to other investors.
Colonial Bank failed with $25.5bn in assets and a loss to the Deposit Insurance Fund estimated at $2.9bn as of 31 December 2017.
The settlement follows a ruling made by the United States District Court for the Middle District of Alabama on 28 December 2017 which found PwC liable for professional negligence in its audit of Colonial Bank.
In July 2018, PwC was ordered by the court to pay $625.3m in damages for failing to spot the fraud scheme. The court report published at the time said: ‘there can be no real dispute (indeed PwC does not raise one) that it was foreseeable that because PwC failed to detect the fraud, Colonial would continue to fund TBW-originated mortgages, both legitimate and fake.
‘Therefore, the money Colonial lost because it continued to fund TBW mortgages – legitimate or fake – after February 20, 2004 are damages that were proximately caused by PwC’s negligent 2003 audit.’
In April 2018, FDIC settled professional negligence claims against Crowe Horwath LLP (now Crowe LLP) arising out of its internal audits of Colonial Bank for $60m.
According to the IAB’s 2018 USA survey rankings, PwC reported $15.9bn in total fee revenue for its FY ended June 2017.
A PwC spokesperson said: “PricewaterhouseCoopers LLP and the Federal Deposit Insurance Corporation as Receiver for Colonial Bank have settled professional negligence claims brought by the FDIC-R against PwC to their mutual satisfaction."
