One of three major cases against PwC is settled.
Of the three lawsuits against PwC that are large enough to potentially be life threatening, one was settled by PwC after several weeks of the trial. I previously discussed Litigation cases that could possibly take down a Big 4 firm.
On 8/26, the Wall Street Journal reports PricewaterhouseCoopers Settles $5.5 Billion Crisis Era Lawsuit.
Francine McKenna has repeatedly pointed out on Twitter that this is the first major case in a long time against an accounting firm which actually got into court. There are a few weeks of testimony which will likely be a good source for researchers and journalists wanting to understand how audits of large companies can go sour.
Amount of settlement is confidential. This settlement still leaves a $1B suit by the FDIC over the failed bank that was audited by PwC.
Let me give a thumbnail picture of this suit. My simplification will obviously show my confusion. Yeah, my bias will probably be visible too.
PwC audited A, which was a massively large bank.
B, a massively large mortgage underwriting firm was a big customer of bank A. B was audited by Deloitte.
B wrote a huge number of mortgage loans and sold them to A.
B failed because of a massive fraud, perpetrated by CEO F, who is now in a federal pen working off his 30 year sentence. Bank A failed because of a separate massive fraud.
The bankruptcy trustee of B sued PwC claiming that by failing to discover the fraud in A, PwC facilitated/ extended the fraud in B.
Thus, the trustee claimed that PwC had a duty to the creditors of B to find fraud in B while they audited A. The trustee claims PwC has a liability for not finding/preventing/ending a fraud in a company they did not audit.
Let me rephrase that: PwC will write a big check because they did not detect that the mortgages (whose paperwork PwC would not have been able to access if they wanted to) written by their client’s vendor (whose files PwC never saw), were fraudulent (which was also undetected by B’s auditors).
As you can tell, I have not been able to get my brain around this lawsuit or settlement.