Deloitte pays $150 million to settle whistleblower case that it failed to detect fraud by mortgage broker

Deloitte Touch will pay $150 million to resolve a case taken by the US Department of Justice alleging that it failed to detect a long-running fraud by a former mortgage broker. The case relates to Deloitte’s role in the 2009 collapse of Taylor, Bean & Whitaker (TBW), a mortgage originator. Lee Farkas, TBW’s founder, and chairman skimmed millions of dollars to buy a private jet, vacation homes and vintage cars, was jailed in 2011 for 30 years. Several other senior executives at TBW and Colonial Bank, a $26bn-in-assets lender which supplied TBW with loans, were sentenced to long stretches in prison.  Deloitte was TBW’s independent outside auditor from 2002 until 2008, during which time it signed off on financial statements that were “materially false and misleading”, the DoJ said. TBW’s fraud involved the sale of fictitious or double-pledged home loans. These caused losses on the government-backed mortgage insurer, the Federal Housing Administration.

When auditors fail to exercise their professional judgment . . . there will be consequences Chad Readler, acting assistant attorney general for the justice department’s civil division  Deloitte said: “Members of [TBW] management, including its CEO, were convicted of engaging in a complex, collusive fraud with a counterparty bank specifically aimed at misleading our organization and investors. Deloitte & Touche is deeply committed to the highest standards of professionalism, and we stand behind this work that dates back over a decade. Nonetheless, we are pleased to have resolved this matter to avoid the risk and uncertainty of protracted litigation.”

In a similar case, a US federal judge ruled last month that PwC should have done more to avert the collapse of Colonial. Damages are due to be assessed next month. When Colonial failed a few days after TBW, there was a $2.8bn cost for the Federal Deposit Insurance Corporation, which sued PwC.

Jeffrey Newman represents whistleblowers