Judge rules PwC negligent in bank failure resulting from fraud, opening the door to hundreds of millions of dollars in damages

PricewaterhouseCoopers LLP was negligent in connection with one of the biggest bank failures of the financial crisis, a federal judge has ruled, opening up the Big Four accounting firm to the potential of hundreds of millions of dollars in damages. PwC violated auditing rules and didn’t take steps that could have detected a $2 billion fraud scheme that contributed to the 2009 failure of Alabama’s Colonial Bank, the judge ruled. The ruling Thursday came in a lawsuit brought against PwC by the Federal Deposit Insurance Corp.
 
The widely-watch case has implications for the broader auditing and consulting industries, which have thus far been mostly insulated from lawsuits when banks they were reviewing later failed, though that appears to be changing. The ruling ups the pressure and liability on firms doing similar audits as well. U.S. District Judge Barbara Jacobs Rothstein will now consider separately whether damages should be imposed on PwC, and how much. She dismissed other FDIC allegations against PwC, as well as allegations of negligence that Colonial’s bankruptcy trustee brought against the accounting firm, (via the WSJ).