Statement by Martin J. Gruenberg
Member, Board of Directors, FDIC
Dissent from Settlement with PricewaterhouseCoopers LLP for Accounting Malpractice at
Colonial Bank
March 15, 2019
The FDIC as receiver for the failed Colonial Bank announced today a settlement with
PricewaterhouseCoopers LLP (PwC) of $335 million. This settlement resolves professional
negligence claims brought by the FDIC against PwC arising out of audits of Colonial Bank of
Montgomery, Alabama. Colonial Bank failed on August 14, 2009, with $24.455 billion in assets
and a loss to the Deposit Insurance Fund estimated at $2.958 billion as of December 31, 2017.
I voted against authorizing the settlement because the settlement did not include a
written admission of liability by PwC.
In the lawsuit, the FDIC alleged that PwC failed to follow required auditing standards
which, if followed, would have led PwC to detect a massive multi-year fraud perpetrated on
Colonial by the bank’s biggest customer, Taylor Bean & Whitaker Mortgage Corporation, a
large mortgage originator. As a result of its failure to follow required auditing standards, PwC
did not detect that hundreds of millions of dollars of assets claimed by Colonial did not in fact
exist, had been sold to others, or were worthless. If PwC had complied with auditing standards, it
would have discovered the fraud, the fraud would have been stopped, and the damages to
Colonial Bank would have been limited.
On December 28, 2017, the U.S. District Court for the Middle District of Alabama,
following a four-week bench trial, concluded that PwC did not design its audits to detect fraud
and PwC’s failure to do so constituted a violation of auditing standards. On July 2, 2018, the
district court awarded damages to the FDIC of $625 million on its claims.
As noted, the settlement announced today did not include a written admission of liability
by PwC. Given PwC’s professional negligence, which contributed directly to the failure of
Colonial Bank and large losses to the Deposit Insurance Fund, I voted against authorizing the
settlement without a written admission of liability by PwC.
Member, Board of Directors, FDIC
Dissent from Settlement with PricewaterhouseCoopers LLP for Accounting Malpractice at
Colonial Bank
March 15, 2019
The FDIC as receiver for the failed Colonial Bank announced today a settlement with
PricewaterhouseCoopers LLP (PwC) of $335 million. This settlement resolves professional
negligence claims brought by the FDIC against PwC arising out of audits of Colonial Bank of
Montgomery, Alabama. Colonial Bank failed on August 14, 2009, with $24.455 billion in assets
and a loss to the Deposit Insurance Fund estimated at $2.958 billion as of December 31, 2017.
I voted against authorizing the settlement because the settlement did not include a
written admission of liability by PwC.
In the lawsuit, the FDIC alleged that PwC failed to follow required auditing standards
which, if followed, would have led PwC to detect a massive multi-year fraud perpetrated on
Colonial by the bank’s biggest customer, Taylor Bean & Whitaker Mortgage Corporation, a
large mortgage originator. As a result of its failure to follow required auditing standards, PwC
did not detect that hundreds of millions of dollars of assets claimed by Colonial did not in fact
exist, had been sold to others, or were worthless. If PwC had complied with auditing standards, it
would have discovered the fraud, the fraud would have been stopped, and the damages to
Colonial Bank would have been limited.
On December 28, 2017, the U.S. District Court for the Middle District of Alabama,
following a four-week bench trial, concluded that PwC did not design its audits to detect fraud
and PwC’s failure to do so constituted a violation of auditing standards. On July 2, 2018, the
district court awarded damages to the FDIC of $625 million on its claims.
As noted, the settlement announced today did not include a written admission of liability
by PwC. Given PwC’s professional negligence, which contributed directly to the failure of
Colonial Bank and large losses to the Deposit Insurance Fund, I voted against authorizing the
settlement without a written admission of liability by PwC.