On November 1, 2012, in what is the first lawsuit the FDIC has filed as part of the current bank failure wave against a failed bank's accountants, the FDIC, as receiver for the failed Colonial Bank, has filed an action in the Middle District of Alabama against Pricewaterhouse Coopers and Crowe Horwath. PwC served as the bank's external auditor and Crowe provided internal audit services to the Bank. A copy of the FDIC's complaint can be found here. (Very special thanks to Francine McKenna of the re: The Auditors blog for providing me with a copy of the FDIC's complaint.).
When Colonial Bank failed in August 2009, it was the sixth largest U.S. bank failure of all time (as discussed here). In is complaint against the accountants, the FDIC alleges Colonial's failure was triggered by the massive, multi-year fraud against the bank by the bank's largest mortgage banking customer, Taylor Bean & Whitaker.
As I detailed in a prior post, here, In April 2011, Lee Farkas, Taylor Bean's ex-Chairman, was convicted of wire fraud and securities fraud. Prior to Farkas's conviction, two Colonial Bank employees pled guilty in connection with the Taylor Bean scheme. As reflected here, on March 2, 2011, Catherine Kissick, a former senior vice president of Colonial Bank and head of its Mortgage Warehouse Lending Division, pleaded guilty to conspiracy to commit bank, wire and securities fraud for participating in the Taylor Bean scheme. As reflected here, on March 16, 2011, Teresa Kelly, the bank's Operations Supervisor and Collateral Analyst, pled guilty on similar charges.
In the criminal cases against the bank employees, the government alleged that the two bank employees caused the bank to purchase from Taylor Bean and hold $400 million in mortgage assets that had no value. The employees also allegedly engaged in fraudulent actions to cover up overdrafts of Taylor Bean at the bank. The employees are also alleged to have had the bank engage in the fictitious trades with Taylor Bean that had no value.
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Read other items of interest from the world of directors & officers liability, with occasional commentary, at the D&O Diary, a blog by Kevin LaCroix.
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