October 25, 2021

Big 4 Lawsuits: Mauro Botta vs. PwC and VBS Mutual Bank Liquidators vs. KPMG

PwC ‘Punished’ Thorough Auditing, Whistleblower Testifies [Law360]
A couple Augusts ago, Adrienne wrote about an academic study that revealed the market for audit services penalizes audit firms for disclosing information critical of management in their audit opinions and that audit firms that find internal control material weaknesses experience lower client and fee growth. In other words, clients really don’t like their auditors calling them out on their poor financial reporting.

The researchers mentioned the whistleblower lawsuit Botta v. PricewaterhouseCoopers as an example of their findings. Mauro Botta was a former PwC auditor in Silicon Valley who filed a lawsuit against the firm alleging that he was fired in retaliation for standing up to and exposing auditor misconduct at PwC and for reporting that conduct to the SEC.

Well, Botta finally got a chance to discuss his accusations against P. Dubs in virtual court this week. Law360 reported on Feb. 23:

Botta testified that he had reason to believe PwC client Cavium, a technology company that would go on to be acquired by Marvell Technology Group for $6 billion, failed to disclose in a quarterly SEC filing that it had fallen victim to a phishing scam that duped it into wiring $400,000 to an overseas bank account. Botta believed the company also didn’t properly disclose its relationship to startup Xpliant.

When he told a PwC partner about his concerns, Botta recounted being told that Cavium “was just a little sloppy, that they were good people, and that they were not different from many other companies in [Silicon] valley.”

Botta testified that PwC stopped having him audit Cavium at the request of Cavium’s chief financial officer.

“I felt that I was being punished” for following firm protocol, Botta told the judge.

Botta said it “doesn’t seem to be very independent” for a client to decide who will be auditing it.

The former PwC auditor also testified that he became “deeply worried” about financial information in previous audits of another technology company, Harmonic, but was told by a PwC partner not to make waves because one of Harmonic’s board members also served on the board of Wells Fargo Bank, a potential client.

He said the partner told him that PwC “would not have been market-competitive” if it flagged Harmonic’s issue as a material weakness — which must be reported in its public filings — and told him that many other companies had similar material weaknesses not flagged by PwC.

PwC contends that Botta’s claims lack merit and that he was terminated for violating both firm policy and professional standards, according to Law360. “The SEC fully investigated Mr. Botta’s purported whistleblower allegations and declined to bring any enforcement action against the firm,” PwC said in a statement.

PwC’s lawyers said this week that the firm is committed to accurate and thorough audits and claimed Botta’s allegations are fueled by vengeance.

On Wednesday, PwC’s counsel tried to convince the judge that Botta was fired for his unprofessional behavior rather than for his whistleblowing accusations.

Law360 reported:

PwC’s attorney, John Charles Hueston of Hueston Hennigan LLP, drilled Botta on his interactions with PwC superiors and his assertions that he felt threatened and retaliated against for raising concerns about accounting practices at client companies in Silicon Valley and PwC’s response to them.

Hueston pointed U.S. Magistrate Judge Alex Tse’s attention to messages in which Botta agrees with a colleague’s description of a superior who took extra precautions during an audit as a “pussy.”

“When you want to take a conservative accounting position, you characterize yourself as a whistleblower, but when someone else does it, they’re a pussy,” Hueston said. Botta disagreed, but didn’t deny partaking in the text exchange.

Hueston also presented to the judge an email Botta wrote to acquaintances and Italy-based PwC employees outlining his numerous “crusades” against the firm. In it, Botta says he suggested the company penalize lazy employees with “shit checks,” but that his idea was rejected because it was illegal under California law.

In response to an objection by plaintiff’s counsel, Hueston spelled out for Judge Tse that while Botta purports to be a “crusader” who is “trying to do everything to put PwC on some sort of corrective pathway to reform the audit industry and that somehow all that derailed his chances to make partner,” it is his unprofessional behavior that has prevented him from becoming a PwC partner.

“None of these crusades related to PwC’s work on any audits, right?” Hueston asked. Botta said he was correct.

Botta is seeking millions of dollars for back pay, lost earnings, and emotional distress.

ALSO: Ex-PwC Worker Put In Hot Seat Over Rude Texts, Emails [Law360]

In a bizarre twist VBS liquidators sue KPMG for R863mn [Mail & Guardian]
The liquidators for VBS Mutual Bank in South Africa are blaming KPMG for the fraudulent ransacking of billions from the bank, saying the auditing firm’s “negligence” spawned the alleged looting, according to the Mail & Guardian:

These claims are contained in a lawsuit for more than R863-million, which liquidators said was owed to VBS by KPMG for signing-off a March 2017 financial statement, which ratified “a fraudulent scheme being perpetrated upon [VBS] between 17 July 2017 and 10 March 2018”.

Some less-than-stellar auditing from KPMG led to the collapse of VBS Mutual Bank, in which almost 2 billion South African rand ($140.7 million) was stolen from the lender, KPMG reported an ex-partner to police, and several high-profile KPMG clients, including Barclays Africa and the government’s Auditor-General, jumped ship.

According to the M&G, the lawsuit also alleges that former KPMG employee Sipho Malaba received a more than R20-million windfall as the auditor who approved the fraudulent financial statement.

Malaba was one of seven people who were arrested on June 17 for their alleged involvement in the VBS scandal.

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