New York: Deloitte Touche Tohmatsu Ltd, the world's largest
accounting and consulting firm, was accused on Monday of failing to
detect fraud during its audits of one of the biggest private mortgage
firms to collapse during the US housing crash.
A trust overseeing the bankruptcy of Taylor, Bean & Whitaker Mortgage
Corp, or TBW, and one of the company's subsidiaries filed complaints
in a Miami Circuit Court claiming a combined $7.6 billion in losses.
Deloitte "certified TBW as a solvent, viable company with accurate
financial statements every year from 2001 to 2008," one of the
complaints said.
"Despite Deloitte's credentials and expertise as one of the 'Big 4'
accounting firms, those statements -- and the rosy picture they
depicted of TBW -- were completely false," it said.
Deloitte spokesman Jonathan Gandal said the "claims are utterly without merit."
It was the latest lawsuit to hit one of the major accounting firms
over their role in the credit crisis.
Pricewaterhouse Coopers, KPMG and Ernst & Young are also facing
accusations about their auditing standards by investors who
collectively seek to recoup billions of dollars lost in the financial
meltdown.
Lee Farkas, the former chairman of Taylor, Bean and Whitaker, was
sentenced to 30 years in prison in April for masterminding what U.S.
officials described as one of the biggest bank frauds ever.
U.S. Justice Department officials said Farkas ran a $2.9 billion fraud
scheme that led to TBW's downfall and the collapse of one of the
largest U.S. regional banks, Colonial Bank.
The complaint filed by Neil F. Luria, a plan trustee of Taylor, Bean &
Whitaker Trust, claims losses of approximately $6 billion. A second
complaint by Ocala Funding, a wholly owned TBW subsidiary which served
as a lending facility, claims losses of $1.6 billion.
Farkas was accused of running a wide-ranging scheme to cover up large
losses at Taylor, Bean, which was based in Ocala, Florida, by moving
funds between accounts at Colonial Bank and also by selling mortgage
loans that either did not exist, were worthless or had already been
sold.
"Deloitte missed this fraud because it simply accepted management's
conflicting, incomplete and often last-minute explanations of
highly-questionable transactions, even though those explanations made
no sense and were flatly contradicted by the documents in Deloitte's
possession," the complaint by Ocala Funding said.
"Ocala relied on Deloitte to detect material misstatements in the
financial statements due to error or fraud," the complaint said.
Gandal said the plaintiffs in the cases were "companies through which
convicted felon Lee Farkas and his co-conspirators committed their
crimes."
"The bizarre notion that his engines of theft are entitled to complain
of injury from their own crimes and to sue the outside auditors they
lied to defies common sense, not to mention the law," he said in a
statement.
Several other Taylor, Bean and Colonial Bank employees who pleaded
guilty for their roles in the fraud were also sentenced earlier this
year
accounting and consulting firm, was accused on Monday of failing to
detect fraud during its audits of one of the biggest private mortgage
firms to collapse during the US housing crash.
A trust overseeing the bankruptcy of Taylor, Bean & Whitaker Mortgage
Corp, or TBW, and one of the company's subsidiaries filed complaints
in a Miami Circuit Court claiming a combined $7.6 billion in losses.
Deloitte "certified TBW as a solvent, viable company with accurate
financial statements every year from 2001 to 2008," one of the
complaints said.
"Despite Deloitte's credentials and expertise as one of the 'Big 4'
accounting firms, those statements -- and the rosy picture they
depicted of TBW -- were completely false," it said.
Deloitte spokesman Jonathan Gandal said the "claims are utterly without merit."
It was the latest lawsuit to hit one of the major accounting firms
over their role in the credit crisis.
Pricewaterhouse Coopers, KPMG and Ernst & Young are also facing
accusations about their auditing standards by investors who
collectively seek to recoup billions of dollars lost in the financial
meltdown.
Lee Farkas, the former chairman of Taylor, Bean and Whitaker, was
sentenced to 30 years in prison in April for masterminding what U.S.
officials described as one of the biggest bank frauds ever.
U.S. Justice Department officials said Farkas ran a $2.9 billion fraud
scheme that led to TBW's downfall and the collapse of one of the
largest U.S. regional banks, Colonial Bank.
The complaint filed by Neil F. Luria, a plan trustee of Taylor, Bean &
Whitaker Trust, claims losses of approximately $6 billion. A second
complaint by Ocala Funding, a wholly owned TBW subsidiary which served
as a lending facility, claims losses of $1.6 billion.
Farkas was accused of running a wide-ranging scheme to cover up large
losses at Taylor, Bean, which was based in Ocala, Florida, by moving
funds between accounts at Colonial Bank and also by selling mortgage
loans that either did not exist, were worthless or had already been
sold.
"Deloitte missed this fraud because it simply accepted management's
conflicting, incomplete and often last-minute explanations of
highly-questionable transactions, even though those explanations made
no sense and were flatly contradicted by the documents in Deloitte's
possession," the complaint by Ocala Funding said.
"Ocala relied on Deloitte to detect material misstatements in the
financial statements due to error or fraud," the complaint said.
Gandal said the plaintiffs in the cases were "companies through which
convicted felon Lee Farkas and his co-conspirators committed their
crimes."
"The bizarre notion that his engines of theft are entitled to complain
of injury from their own crimes and to sue the outside auditors they
lied to defies common sense, not to mention the law," he said in a
statement.
Several other Taylor, Bean and Colonial Bank employees who pleaded
guilty for their roles in the fraud were also sentenced earlier this
year
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