Deloitte in $ 150 million settlement following mortgage broker collapse

Updates from US and Canadian companies

The US Department of Justice snatched $ 150 million regulation from Deloitte, the world’s largest professional services firm, about its alleged failure to detect long-standing fraud at a former mortgage broker.

The settlement, announced Wednesday, concerns Deloitte’s role in the 2009 collapse of Taylor, Bean & Whitaker (TBW), a mortgage originator based in Ocala, Florida.

Lee Farkas, founder and chairman of TBW who scooped millions of dollars to buy a private jet, vacation homes and vintage cars, was imprisoned in 2011 for 30 years. Several other senior executives from TBW and the Colonial Bank, a $ 26 billion asset lender that provided loans to TBW, were given lengthy prison terms for their roles in a seven-year scam that took reached $ 2.3 billion.

Deloitte served as TBW’s independent external auditor from 2002 to 2008, during which time it approved financial statements that were “essentially false and misleading,” the DoJ said. The TBW fraud involved the sale of fictitious or double-pledged home loans and, as a result, inflicted losses on the government-backed mortgage insurer, the Federal Housing Administration.

The DoJ noted that the claims settled by Wednesday’s deal were just allegations and there was no determination of liability.

“With taxpayer dollars at stake, auditors need to take their obligations seriously when auditing companies that participate in government programs,” said Chad Readler, acting deputy attorney general in the civil division of the Department of Justice. Justice. “When auditors fail to exercise professional judgment and make false claims that allow bad actors to stay in government programs and submit false claims to government, there will be consequences.”

Deloitte said: “The members of [TBW] management, including its CEO, were found guilty of engaging in complex and collusive fraud with a counterpart bank aimed specifically at deceiving our organization and our investors. Deloitte & Touche is deeply committed to the highest standards of professionalism, and we support this work that dates back over a decade. Nonetheless, we are pleased to have resolved this matter to avoid the risk and uncertainty of protracted litigation. “

Deloitte is not the only major auditor to have been accused of negligence in the case. A US federal judge ruled last month that PwC should have done more to prevent Colonial’s collapse. The damage is to be assessed next month.

When Colonial failed days after TBW, there was a cost of $ 2.8 billion to the Federal Deposit Insurance Corporation, which sued PwC. The group had given the bank’s parent company, Colonial BancGroup, an unequivocal audit for years before it emerged that huge chunks of Colonial’s loans to TBW were secured by assets that did not exist. .

The verdict came more than a year after PwC settled a $ 5.5 billion case brought against it by TBW’s bankruptcy trustee, in the largest accounting negligence lawsuit ever. The decision to settle – for a confidential sum – came four weeks after proceedings began in Miami state court.

Colonial, based in Montgomery, Alabama, was the 25th largest U.S. lender by assets when it went bankrupt, ranking sixth in bank failures in history. Washington Mutual tops the list with $ 307 billion.

PwC had $ 37.7 billion in revenue through June, putting it a little behind Deloitte, with $ 38.8 billion through May.

About Mohammed B. Hale

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