* Charges PwC, Crowe Horwath w/ negligence, malpractice
* Says their audits concealed fraud that led to Ch. 11
NEW YORK Aug 25 (Reuters) – Colonial Bancgroup Inc
(CBCDQ.PK) and its trustee filed a lawsuit against former
auditors PricewaterhouseCoopers LLC and Crowe Horwath LLP,
charging them with accounting malpractice and professional
negligence for not catching a fraud that led to the bank’s
collapse.
The complaint was filed late on Wednesday in a Circuit
Court in Montgomery County, Alabama.
It also accuses the auditors of breach of contract, saying
that PwC’s independent audits of its financial statements
violated generally accepted accounting standards and served to
conceal the seven-year fraud that drained it of $1.8 billion
and left it with hundreds of millions of dollars in worthless
or nonexistent assets on its balance sheet.
Officials for PwC and Crowe Horwath could not immediately
be reached for comment.
“PwC’s and Crowe’s representations and reports to
BancGroup’s audit committee were reckless and grossly
inaccurate with regard to BancGroup’s true financial condition
and defendants’ compliance with professional standards,” said
the Alabama-based bank in its complaint.
“Had PwC and Crowe properly discharged their professional
duties, the ongoing fraud and the hole in BancGroup’s balance
sheet … would have been detected by no later than fiscal
year-end 2007,” the complaint said.
As it turned out, Bancorp said it did not find out about
the fraud being committed in its Orlando, Florida-based
mortgage warehouse lending division until a raid by federal
authorities on Aug. 3, 2009.
The bank was forced to close on Aug. 14, 2009, and
voluntarily filed for Chapter 11 bankruptcy protection in
Montgomery, Alabama on Aug. 25, 2009.
Its bankruptcy plan was confirmed in June 2011, the same
month that Catherine Kissick, former head of the mortgage
warehouse lending division, was sentenced to eight years in
federal prison after pleading guilty to one count of conspiracy
to commit bank, securities and wire fraud.
Lee Farkas, former chairman of Taylor, Bean & Whitaker
Mortgage Corp, and the fraud’s mastermind, was later convicted
on 14 counts of conspiracy, bank, securities and wire fraud and
sentenced to 30 years.
(Reporting by Martinne Geller, editing by Bernard Orr)
Originally Published On: www.reuters.com – Original Article Here