Well, this was some news I really wasn’t expecting today. FDIC as Receiver for Colonial […]
[Updated with statement from Bartlit Beck Herman Palenchar & Scott] Reports are hitting the interwebs this […]
PwC Faces Damages That Range From ‘Bad’ to ‘Worse’ But Probably Far Short of ‘Catastrophic’ for Colonial Bank Failure
Francine McKenna reports on MarketWatch that the Federal Deposit Insurance Corp. stands to collect a […]
In the waning days of 2017, a judge in Alabama found PwC was negligent in […]
Ed. note: Our permanently ink-stained wench is still struggling with Internet connectivity after a small storm swept through the DC area, so we now present the following post that is republished with permission from Jr. Deputy Accountant.
A-ha! I hate to say I told you so (no I don’t) but, uh, I told you so.
In August of 2009, I caught PwC digging around on my site to find out more about the Colonial Bank failure, a failure which PwC itself oversaw and maybe just participated in (if indirectly, naturally). The year before Colonial’s epic failure, PwC auditors gave the bank the all clear.
“In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of The Colonial BancGroup, Inc. and its subsidiaries at December 31, 2008 and 2007 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2008 in conformity with accounting principles generally accepted in the United States of America,” read the opinion.
Anyway, fast-forward two years and here we are:
Colonial Bancgroup Inc (CBCDQ.PK) and its trustee filed a lawsuit against former auditors PricewaterhouseCoopers LLC and Crowe Horwath LLP, charging them with accounting malpractice and professional negligence for not catching a fraud that led to the bank’s collapse.
The complaint was filed late on Wednesday in a Circuit Court in Montgomery County, Alabama.
It also accuses the auditors of breach of contract, saying that PwC’s independent audits of its financial statements violated generally accepted accounting standards and served to conceal the seven-year fraud that drained it of $1.8 billion and left it with hundreds of millions of dollars in worthless or nonexistent assets on its balance sheet.
Can someone please tell me why the PCAOB still has a job with this nonsense going on? Furthermore, why does PwC make $13 billion a year soaking its clients with audit fees? And why aren’t the people of the United States suing the shit out of these auditors too? Colonial was the 6th largest bank failure in U.S. history and cost taxpayers $3.8 billion.
Anyone else find it funny how they call the audit service arm “Assurance”? It has nothing to do with discovering fraud or giving investors actual peace of mind that the statements they are looking at are, in fact, prepared in accordance with GAAP. Rather it is a mafia-style pay-to-play protection ring that offers clean audit opinions in exchange for cash.
Vomit. All over Dennis Nally’s impeccably polished wingtips.
This isn’t mathleticism, this is simply truth in numbers. With Colonial Bank officially R.I.P. and torn to shreds (North Carolina-based BB&T has picked up the branches, the garbage will likely be marked down and sold off to whichever sucker the FDIC can find) this past week, it might be a good idea to look at the mathematical reality of the situation.
Lately, bank failures seem to lead tangentially to accounting in that banks often point the finger at mark-to-market as the key piece which sent them hurtling toward doom. Sure, blame the accounting, that’s always a classy move. But all’s fair in love and value right?
In an era where the word “trillion” hardly raises an eyebrow, let’s put this into perspective and look at the 5 largest bank failures of all time (in terms of costs to FDIC):
More, after the jump
5. BankUnited, Coral Gables, FL: $4.9 Billion
4. American Savings and Loan, Stockton, CA: $5.7 billion – at the time, the amount to cover American S & L cost the FDIC 10% of its “fund” and was one of the largest failures of the savings and loan crisis.
3. Continental deserves its whole epic tale
2. Washington Mutual (we can’t discuss costs to the FDIC for this one since JP Morgan swooped in to get it and there are still active lawsuits around the deal)
1. IndyMac: $10.7 billion. That wasn’t too long ago so you should still remember the tale.
In one day (this past Friday), the FDIC found itself on the hook for an estimated $3.68 billion, and surely that’s a positively-doctored number. Move along now, nothing to see here.
Authorities on August 14 closed down five banks — Colonial Bank; Dwelling House Savings and Loan Association; Union Bank, National Association; Community Bank of Arizona and Community Bank of Nevada.
As per the Federal Deposit Insurance Corporation (FDIC), which is often appointed as the caretaker of failed entities, the collapse of these five banks would cost the agency a staggering USD 3.68 billion.
So all that fuss over at Colonial Bank? Accounting irregularities, natch. According to Reuters, “Colonial BancGroup Inc (CNB.N) said it faces a criminal probe by the U.S. Department of Justice (DoJ) related to accounting irregularities at its mortgage lending unit, and the struggling lender warned it may be put under receivership.”
The SEC is also taking a peek at the bank’s participation in TARP. Book cooking for taxpayer funds may have its poster child. Top notch, Colonial. Top notch.
Colonial BancGroup faces criminal probe, FDIC action [Reuters]
Editor’s note: Adrienne Gonzalez is founder and managing editor of Jr Deputy Accountant as well as regular contributor to leading financial/investment sites like Seeking Alpha and GoldmanSachs666. By day, she teaches unlicensed accountants to pass the CPA exam, though what she does in her copious amounts of freetime in the evening is really none of your busines ures in Fedbashing and CPA-wrangling on Twitter @adrigonzo but please don’t show up unannounced at her San Francisco office as she’s got a mean streak. Her favorite FASB is 166.
The Colonial BancGroup audit group is going to have some ‘splaining to do when all’s said and done. Proof that you really don’t want to mess around when it comes to $700 billion taxpayer injections.
SIGTARP top cop Neil Barofsky said early on “I hope we don’t find a single bank that’s cooked their books to try to get money but I don’t think that’s going to be the case” but evidently forgot to knock on a nearby piece of wood in the Treasury basement when he did as SIGTARP agents have raided two Florida offices in conjunction with possible TARP fraud.
The whole thing, after the jump
“I can confirm for you that our office, the Office of the Special Inspector General for the Troubled Asset Relief Program, has executed two search warrants today in the state of Florida,” said Kristine Belisle, communications director. “It’s our investigation. It’s our agents that have executed search warrants.”
Belisle said the warrants were sealed.
“I can’t provide any further information because of the nature of an on-going investigation,” Belisle said.
While Belisle is hesitant to get into the details, we’d be happy to catch you up for now.
The story, as we understand it, goes something like this: Colonial BancGroup, finding itself under increased pressure by both federal and state regulators including the FDIC, Federal Reserve, and the Alabama State Banking Department to bump up capital, thought it had a $300 million deal in the bag with Florida-based Taylor, Bean & Whitaker. We’d like to point out here that while the author enjoys stirring up trouble wherever possible, it’s never a good idea to do so when Federal regulators are involved, especially when they toss out demands like this:
WHEREAS, on July 15, 2009, the board of directors of BancGroup at a duly constituted meeting adopted a resolution authorizing and directing Simuel Sippial, Jr. to enter into this Order on behalf of BancGroup, and consenting to compliance with each and every provision of this Order by BancGroup and its institution-affiliated parties (blah blah blah)
(a) The consolidated organization’s and the Bank’s current and future capital requirements, including compliance with the Capital Adequacy Guidelines for Bank Holding Companies: Risk-Based Measure and Tier 1 Leverage Measure, Appendices A and D of Regulation Y of the Board of Governors (12 C.F.R. Part 225, App. A and D) and the applicable capital adequacy guidelines for the Bank issued by the Bank’s federal regulator;
Our emphasis/edit. Long story short, the Taylor, Bean & Whitaker deal was never a go and Colonial shares have been in full-on death watch ever since. But wait, there’s more!
As of about 11a EST this fine Monday morning, SIGTARP agents have crawled around both Colonial and TBW offices in search of… well, we don’t know exactly what they were looking for as company reps and regulators have been fairly tight-lipped since this story broke but we’re pretty sure they aren’t trying to track down Michael Jackson’s body.
Not so coincidentally, Colonial (CNB) reported a $606 million loss on Friday. The phrase “going concern doubt” was probably invented just for cases like this, although we have our own phrasing that we like to use including “totally screwed!” and “Just Big Enough to Fail”
This is the first large SIGTARP case that we are aware of and if Colonial is closed by regulators, it will be the largest bank failure of the year. No disclosures, though we will be excited to see what else Barofsky’s office is cooking up (no pun intended).
Feds raid Colonial Bank office in Florida [Reuters]