Trial alleging PWC committed accounting fraud could last through September

By Seth Sandronsky | Aug 22, 2016

“I am going to prove to you that PricewaterhouseCoopers LLP didn’t do its job of auditing Colonial Bank to determine whether its financial statements were true,” said attorney Steven Thomas.

MIAMI - Did one of the nation's top accounting firms fail to detect fraud in its audits of a bank leading to a loss of $5.5 billion that required a government bailout?

An answer will emerge in the jury trial of Taylor Bean & Whitaker Plan Trust (TBW) v. PricewaterhouseCoopers (PWC), which began Aug. 9 in Circuit Court for the Eleventh Judicial Circuit of Florida, with Judge Jacqueline Hogan Scola presiding.


TBW is the trustee for the bankrupt Taylor Bean & Whitaker Mortgage Corp. that had been headed by Lee Farkas, now serving a 30-year sentence in federal prison for multiple counts of bank, securities and wire fraud.


According to case background, Colonial Bank in part lent capital to TBW to originate mortgage loans. In addition to Farkas, former TBW executives have served or are serving federal prison sentences of 30 months to 72 months for multiple counts of financial fraud involving Colonial Bank and the defunct mortgage-company’s swindling scheme.


“I am going to prove to you that PWC didn’t do its job of auditing Colonial Bank to determine whether its financial statements were true,” said attorney Steven Thomas of Thomas Alexander Forrester & Sorensen LLP, in an opening statement, on Courtroom View Network’s webcast trial coverage, representing the TBW Plan Trust for the bankrupt mortgage company that did business with the now-failed Colonial Bank.

According to Thomas, PWC was negligent and ultimately violated public trust.


Further, Thomas stated that the plaintiffs lost billions of dollars due to PWC’s deficient audits of Colonial Bank that should have but did not detect TBW’s faulty mortgage business with the bank. For example, some of TBW’s mortgages had fictitious monetary value.


After the TBW bankruptcy, its customers, creditors and the mortgage-company’s workers took hard hits, Thomas said.


Elizabeth Tanis of King & Spalding LLP, PWC’s attorney, in opening comments, said that the accounting firm had no contractual agreement with TBW nor involvement in its audits.

She said that Deloitte & Touche, one of the nation's other big four accounting firms, was TBW’s auditor.


In two days of testimony, Neil Luria, a federal court-appointed trustee for the TBW plan, detailed the detection and operation of the mortgage-lenders’ alleged fraud.

Later, John Chandler of King & Spalding LLP, representing PWC, cross-examined Luria.


Dan Miller Guy, a retired university accounting professor, was the next witness for the plaintiffs. He in part testified, critically, about PWC’s expertise in its audits of Colonial Bank.


According to a MarketWatch report, PWC’s future viability could be at-risk.

“An unfavorable verdict in the trial currently playing out in a Florida state court could inflict a significant monetary wound," the report stated. "That, combined with a possible unfavorable judgment in another trial scheduled for federal court in Alabama in February of 2017, and a third in a Manhattan federal court within the next year, may be fatal” 


The trial is expected to last through September.

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