Trigaux: Auditor PwC settles $5.5 billion lawsuit as Taylor, Bean mortgage fraud case enters eighth year

Mortgage fraud case enters eighth year

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In a Miami courtroom last Friday, defendant PwC settled a $5.5 billion lawsuit halfway through a six-week trial. At issue: the global auditor’s alleged failure to catch a massive fraud in Florida that led to the sixth-largest bank failure in U.S. history.

PwC (Pricewaterhouse­Coopers, as it was once called) served as auditor of Colonial Bank. The Alabama bank got in over its head in bad-news mortgage deals with an Ocala lender called Taylor, Bean & Whitaker. The firm ballooned from nothing into the nation’s 12th-largest mortgage lender in the hands of Lee Farkas, a con man with a love for sports cars and corporate jets.

Long story made short? The FBI raided Taylor Bean’s ornate headquarters in Ocala in 2009 shortly after the mortgage firm had agreed to take control of the vastly larger but struggling Colonial Bank — Taylor Bean’s main lender.

Taylor Bean would soon be shuttered with more than 1,000 workers losing their jobs. Farkas is still in the early innings of a 30-year jail term for fraud in a medium-security prison in Butner, N.C. Colonial Bank failed, badly, forcing its seizure by the Federal Deposit Insurance Corp. at a $3 billion cost to the federal agency.

From 2002 to 2008, PwC auditors gave Colonial Bank a clean bill of health, until the bank collapsed. The CNBC TV business crime series American Greed devoted an episode to this complex financial mess in the summer of 2012.

Which brings us full circle. Why did PwC opt to settle in the midst of its Miami trial?

PwC isn’t talking, but it’s a fair bet that things did not look promising in the courtroom. A lawsuit seeking $5.5 billion for “gross negligence” is not just a big number. It’s the largest suit ever brought against an auditing firm.

“Year after year, Pricewaterhouse didn’t do their job, they didn’t follow the rules and they failed to detect the fraud,” Steven Thomas, an attorney for Taylor Bean’s trustee, said in opening statements this month.

Better that PwC bite the bullet on a smaller (and confidential) settlement figure.

But PwC surely kept in mind the fate of one of its now-defunct peers. Auditing giant Arthur Andersen, formerly one of the nation’s “Big Five” accounting firms, once claimed Texas energy firm Enron as a client. In the wake of a now-infamous accounting scandal, Enron declared bankruptcy. Andersen went as far as to shred Enron audit documents, part of an effort to cover up billions in Enron losses.

In 2002, Arthur Andersen surrendered its licenses to practice as certified public accountants after being found guilty of criminal charges.

In PwC’s civil case, Taylor Bean trustees say Colonial Bank bought $1 billion of fake assets concocted on paper by the Ocala mortgage firm with help from Colonial executives. Yet PwC declared Colonial Bank was in fine shape. Until the bank failed.

So what exactly did PwC auditors do? Perhaps we’ll learn more soon.

PwC still faces two lawsuits heading to trial early next year from a Colonial Bank trustee and the FDIC.

Contact Robert Trigaux at rtrigaux@tampabay.com. Follow @venturetampabay.

Trigaux: Auditor PwC settles $5.5 billion lawsuit as Taylor, Bean mortgage fraud case enters eighth year 08/29/16 [Last modified: Monday, August 29, 2016 7:17pm]

2 Responses

  1. HE IS JUST ONE OF THE LITTLE FISH. WHY NOT A CLASS ACTION SUITE AGAINST THE GOVT. AGENCIES CEO’S WHOM TOOK MILLIONS IN BONUS’S. THIS IS A START. NO ONE WANT’S TO HER MY CASE!!!I JUST SETTLE A PROPERTY AS A BROKER FOR CLIENTS OF MINE. FORMER PROPERTY SOLD FOR 187 K IN 2007, NO FORECLOSURE. I SHORT SALE’D IT FOR 60 K CASH BUYER.
    MY CASE THEY FORECLOSED IN LESS THAN 6 MONTHS. I EVEN SENT THE PAYMENT OR WANTED TO THEY DIDN’T WANT IT. THEY WANTED TO FORECLOSE. THE ATTORNEY WANTED IT AS WELL. NEVER RESPONDED TO MY CALL’S. SO MORE TO THIS TO INCLUDE ATTORNEY’S AND ANYONE ASSOCIATED WITH THIS SUB PRIME SCAM TO INCLUDE POLITICO’S. I THANK YOU FOR YOUR EFFORTS.

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