Accounting giant PricewaterhouseCoopers started off Tuesday in court with lawyers for a defunct mortgage company’s creditors and investors over a $5.5 billion lawsuit, which claimed the Big Four firm failed through years of audits to uncover fraud at a failed Alabama bank.
The estimated $21 billion fraud at Colonial Bank of Montgomery, Ala., was orchestrated by top executives at the shuttered mortgage firm Taylor, Bean and Whitaker of Ocala, Fla. Six Taylor Bean senior executives and two Colonial employees were convicted of federal fraud crimes and went to prison. Colonial was shut down in 2009.
Steven Thomas, attorney for a trustee representing Taylor Bean creditors and investors, said PricewaterhouseCoopers did seven audits while the scheme was ongoing and failed to find it. That means, he told a jury, the firm should be held liable.
“PricewaterhouseCoopers had a job: detect fraud. And the second thing I’m going to prove to you is that PricewaterhouseCoopers failed to do its job,” Mr. Thomas said.
PrivewaterhouseCoopers attorney Beth Ranis countered that the lawsuit was essentially an attempt to get the firm to pay for money stolen in the fraud scheme by Taylor Bean, now represented by he trustee. She said the perpetrators, who were insiders, tok elaborate steps to cover up their crimes and that other audits at the bank and mortgage also missed it.
The scheme didn’t come to light until a Colonial employee went to the FBI in 2009, she added.
The trial before Miami-Dade Circuit Judge Jacqueline Hogan Scola is expected to last six weeks. The plaintiffs seeking $5.5 billion in damages, plus possible punitive damages, include government-backed mortgage enterprises Freddie Mac and Ginnie Mae.
Taylor Bean was once one of Colonial’s biggest customers. Taylor Bean’s top executive, Lee Farkas, worked out a deal with a Colonial banker to use improper overdrafts to meet expenses and payroll. That later morphed into a scheme in which Colonial was buying billions of dollars in fake, non-existent mortgages from Taylor Bean.