Dan Guy, an expert in auditing accounting standards, testified in support
of a $5.5 billion claim against PricewaterhouseCoopers LLC, alleging it
should have stopped the fraud at Taylor Bean & Whitaker Mortgage Corporation
that ultimately led to its collapse.
Guy is considered an expert witness in accounting and auditing from his
time working with the American Institute of Certified Public Accountants,
as well as being a critical component in the authoring of many of the
industry-auditing rules. He took the stand in a state court in Miami as
an expert witness for Neil Laura, the trustee managing Taylor Bean’s
Laura claims that PwC was negligent in auditing Taylor’s parent company,
Colonial Bank, which carried out a multi-billion dollar fraud scheme that
led to the sixth-largest bank collapse in U.S. history. Experts contend
that by attacking Colonial’s auditor, the trustee is attempting
to expand the scope of liability for Taylor’s fraudulent actions.
In testifying before the jury, Guy stressed the point that the role of
auditor goes far beyond that of their current client. “You have
to pledge allegiance to the public interest. I call this the public duty…
you have this duty, not just to the client who pays your fee, but to the
users of the audited financial statements.” Auditors have an obligation
to provide reasonable assurances that their client’s statements
are free of misstatements.
According to the trustee, PwC confirmed more than $1 billion of Colonial
Bank assets that did not exist or had little to no value. The auditor,
however, has argued that it did not have a contract with Taylor Bean,
and, not having any access to the books, never audited the company. PwC
also claimed that Deloitte & Touche LLP audited Taylor Bean for many
years without ever finding an indication of fraud.
That claim seems not to hold water, considering Deloitte had reached a
confidential agreement with the trustee in 2013 to settle three lawsuits
ranging from 2002 to 2009 that sought billions in damages stemming from
the mishandling of the firm’s audits.
Guy went on to blast PwC’s audit performance of Colonial and Taylor
Bean transactions, and said that the contract between the two spelled
out obligations and review practices on the part of PwC that were closely
aligned with industry standards. In his remarks to the jury, he stated
that “it is not debatable” that PwC has a fraud detection
responsibility to all stakeholders, noting that the AICPA modified its
standards, in part, to place added emphasis on an auditor’s responsibility.
According to Guy, PwC never understood the complexity of the underlying
class of transactions that involved an agreement to resell securities.
The $1.5 billion purchased under the agreement was referred to as an “assignment
of trade.” He went on to say that PwC ignored standards when they
neglected to consult bankruptcy attorneys about protecting the sales of
securities to ensure they could not be placed back on the books in case
Without such opinions, PwC lacked sufficient, competent evidence and should
not have issued a required opinion on the bank’s internal controls
in support of Colonial’s financial statements.
Other reported violations by PwC include failing to confirm year-end numbers
for some audit reports and continuing to send confirmation documents directly
to Taylor Bean’s chief operating officer, Lee Bentley, even after
an indication of TB’s possible fraud.
The collapse of Colonial Bank cost the FDIC's Deposit Insurance Fund
about $3 billion, according to court documents. An FBI investigation into
the extensive fraud perpetrated by the firm led prosecutors to indict
several executives of the company, with some now serving lengthy federal
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