PricewaterhouseCoopers LLP, which served as independent and external auditor for Colonial BancGroup Inc., will pay $625.3 million in damages to the Federal Deposit Insurance Corp. for failing to uncover the fraudulent scheme that resulted in the 2009 failure of Colonial Bank, a unit of Colonial BancGroup.
According to a ruling by the U.S. District Court for the Middle District of Alabama Northern Division, Colonial's failure was triggered by a massive fraud perpetrated by its largest customer Taylor Bean & Whitaker Mortgage Corp. and certain employees of Colonial.
Under the scheme, Taylor Bean had overdrawn its account at Colonial and then attempted to hide the issue by selling Colonial mortgages already sold to other investors. Taylor Bean ended up filing for bankruptcy in 2009.
The fraud, which began in 2002, grew and became more complex as the years passed. It was exposed in August 2009, and Colonial was placed into receivership with the FDIC. In 2012, the FDIC instituted a professional negligence action against PwC.