Settlement of $335 million with big accounting firm leads to dissension at FDIC

A settlement of $335 million with a prominent accounting firm is final, related to professional negligence claims brought against the firm after audits of a failed Alabama bank by its federal insurer.

However, not everyone at the regulator believe the agency made the right decision.

The Federal Deposit Insurance Corp. (FDIC) said Friday it reached the multi-million settlement with PricewaterhouseCoopers LLP (PwC). The settlement follows a late-2017 verdict by a federal court against the accounting firm, which held it liable for professional negligence in its audit of Colonial Bank of Montgomery, Ala. The agency was awarded damages in the ruling.

The $25.5 billion bank, the FDIC said, failed in 2009 causing a loss of an estimated nearly $3 billion (as of year-end 2017) to the FDIC’s Deposit Insurance Fund.

The settlement with PwC follows another related to auditing at the failed bank; the FDIC reported that last April it settled professional negligence claims against Crowe Horwath LLP arising out of its internal audits of Colonial Bank. The settlement was for $60 million.

However, following the agency’s release this morning, FDIC Board Member (and former chairman) Martin Gruenberg released his own statement of dissent with the PwC settlement.

“I voted against authorizing the settlement because the settlement did not include a written admission of liability by PwC,” Gruenberg said in the statement.

Gruenberg wrote that the result of PwC’s failure to follow required auditing standards meant the auditing firm “did not detect that hundreds of millions of dollars of assets claimed by Colonial did not in fact exist, had been sold to others, or were worthless.” He asserted that if PwC had complied with auditing standards, it would have discovered the fraud, the fraud would have been stopped, and the damages to the bank limited.

“Given PwC’s professional negligence, which contributed directly to the failure of Colonial Bank and large losses to the Deposit Insurance Fund, I voted against authorizing the settlement without a written admission of liability by PwC,” he concluded.

FDIC Settles with PricewaterhouseCoopers LLP on Audits of a Failed Bank

Statement by Martin J. Gruenberg, Member, Board of Directors, FDIC on the Dissent from Settlement with PricewaterhouseCoopers LLP for Accounting Malpractice at Colonial Bank

 

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