Deloitte & Touche, auditor of Ocala's Taylor Bean mortgage fraud, target of $7.6 billion lawsuits
Wake up and good morning. Lest you think Ocala's financial disaster -- better known as the collapse of Taylor Bean Whitaker Mortgage Corp., the firm that allegedly flimflammed the collapse of Colonial Bank, one of the bigger banks in the United States -- is old news, guess again.
The trustee overseeing the bankruptcy of Taylor Bean filed a lawsuit this week against auditor Deloitte & Touche LLP, saying the firm's "grossly negligent audits" contributed to the mortgage lender's collapse. The trustee's lawsuit and a second action filed against Deloitte on Monday by a Taylor Bean subsidiary called Ocala Funding seek a total of at least $7.6 billion in damages. Deloitte was Taylor Bean's auditor from 2002 until it resigned from the assignment in 2009, a move that helped trigger the lender's collapse. the Wall Street Journal reports. The lawsuits seek to recover some of the billions of dollars owed investors. By the time the fraud came to light, Taylor Bean had lost more than $6 billion, according to the trustee's lawsuit. "If Deloitte had done their job … this fraud would never have caused the $6 billion loss," said Steven W. Thomas, an attorney representing both plaintiffs, the Journal story reports.
"Deloitte's negligence, and willful blind eye, was the fuel without which" efforts to defraud the company "would have sputtered out long before it resulted in the multibillion debt under which TBW collapsed," the lawsuit said.
Yep, time once again to blame a major auditing firm that seemingly wore blinders, according to the lawsuits, while supposedly doing its job and failing to detect massive fraud.
Sound familiar? It should.
* Last December, the New York attorney general's office filed a civil fraud lawsuit against Ernst & Young LLP, alleging the auditor stood by while its client, Lehman Brothers Holdings Inc., misled investors about its true financial condition prior to the company's 2008 collapse. Ernst & Young has denied the allegations.
* This summer, the bankruptcy trustee for Colonial Bancgroup, the holding company for Colonial Bank, sued accounting firms PricewaterhouseCoopers LLC and Crowe Horwath LLP, alleging they failed to catch fraud. Read more in Accounting Today.
* Deloitte's already named in other big lawsuits stemming from the credit crisis, including one involving its audits of Bear Stearns, which collapsed after suffering enormous mortgage losses, and another involving Washington Mutual, the biggest bank to fail during the credit crisis. Read more from Forbes and Business Insider.
* Nine years ago, the Arthur Andersen accounting firm surrendered its licenses to practice as Certified Public Accountants in the United States after being found guilty of criminal charges relating to the firm's handling of the auditing of Enron, an energy corporation based in Texas which had filed for bankruptcy in 2001 and later failed. Read more in Time magazine.
Don't let the quiet Ocala address of Taylor Bean fool you. This was one of the biggest mortgage companies nationwide. And it's also a rare success story for federal prosecutors amid a Wall Street financial collapse that has failed to produce many perps. Taylor Bean's collapse eventually led to one of the few successful criminal prosecutions relating to the housing crisis. In June, a federal judge sentenced former Taylor Bean Chairman Lee Farkas (mug shot, right) to 30 years in prison for running a multibillion dollar fraud scheme that led to the collapse of the mortgage lender and Colonial.
"It's always difficult to believe that an auditor that's been auditing for seven years or more during an alleged ongoing fraud had no red flags," Andrea Kim, a partner at Diamond McCarthy LLP in Houston, told Reuters.
No so fast, says Deloitte. Auditing firm spokesman Jonathan Gandal told Reuters the plaintiffs in the case 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.
-- Robert Trigaux, Business Columnist, St. Petersburg Times