Start the conversation
Something unexpected just happened… A tiny piece of earth was lobbed into a very deep regulatory black hole.
The Senior Judge of the U.S. District Court for the Western District of Washington, Judge Barbara Jacobs Rothstein, ruled last week that the accounting giant PricewaterhouseCoopers was liable for failing to uncover a multibillion-dollar fraud that sank Alabama-based Colonial Bank in 2009.
Allowing the FDIC to try and collect the $2.5 billion Colonial's demise cost the FDIC's insurance fund puts the accounting industry on notice – especially Deloitte, Ernst & Young, KPMG, and PwC, who collectively audit companies that account for 98% of the value of U.S. stock markets. Auditors may be liable for inadequate or fraudulent audit reports they typically rubber stamp with gold stars.
Unfortunately, it's only a shovelful of earth that probably won't hit the bottom of the deep regulatory hole accounting giants swim freely in. Still, there's a potential here for a ripple effect that could end up changing the broken system that allows this level of fraud to happen under auditors' noses.
Here's how deep the regulatory gap is and the odds on PwC being held accountable or settling…
First, Just the Facts
Catherine Kissick, the head of Colonial Bank's mortgage lending department, aided and abetted an insane fraud perpetrated by Colonial's biggest mortgage banking customer, Lee Farkas, the former chairman of bankrupt mortgage lender Taylor, Bean & Whitaker.
Kissick "bought" hundreds of millions of dollars in mortgages from TBW that they didn't own or had previously pledged to other lenders. She also allowed the failing business to freely "sweep" money from Colonial accounts into a TBW overdraft account to keep insolvent TBW afloat in the financial crisis.
One of my trade recommendations closed out for a 995% win. And I've got seven more trade recommendations lined up right now. Click here to learn more…
Taylor, Bean & Whitaker collapsed. Farkas was sentenced to 30 years in prison. Six other TBW executives went to jail for their roles in the scheme, and Catherine Kissick was sentenced to eight years for fraud.
Deloitte, TBW's external auditor, settled with TBW's bankruptcy trustee for an undisclosed sum in 2013.
Colonial Bank collapsed in 2009 when it was discovered there wasn't any collateral behind the loans it made to TBW.
That's the straight and narrow view of what happened, and it's incriminating enough. But now it gets even more complicated.
About the Author
Shah Gilani is the Event Trading Specialist for Money Map Press. In Zenith Trading Circle Shah reveals the worst companies in the markets - right from his coveted Bankruptcy Almanac - and how readers can trade them over and over again for huge gains. He also writes our most talked-about publication, Wall Street Insights & Indictments, where he reveals how Wall Street's high-stakes game is really played.