A federal judge who ruled against Pricewaterhousecoopers could cost the auditor more than $1 billion in damages and help to establish law that auditors may be liable for failing to detect fraud. The case involves the Colonial Bank Group against Pricewaterhouse, which was auditing the bank. The bank ultimately failed after a major fraud was discovered between the bank and mortgage originator Taylor Bean & Whitaker. The case was for professional malpractice and was the first suit against an auditor in a financial crisis era bank fraud case.
The Colonial Bank failure cost the FDIC’s deposit insurance fund $2.3 billion according to the FDIC.
The Judge in the case, U.S. District Court Judge Barbara Jacobs Rothstein gave the FDIC a victory in one of three claims brought against Pricewaterhouse and said in her decision that PWC could have uncovered the fraud by inspecting some of the underlying documents for the mortgages at issue but didn’t.
Some experts feel that in the future, auditors will be required to reveal fraud in the auditing process.
Jeffrey Newman represents whistleblowers.