UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF ALABAMA
NORTHERN DIVISION
FEDERAL DEPOSIT INSURANCE
CORPORATION, as Receiver for
Colonial Bank,
Plaintiff,
v
PRICE WATERHOUSECOOPERS
LLP and CROWE HORVATH LLP,
Defendants.
I. INTRODUCTION
I. On August 14, 2009, the Alabama State Banking Department closed
Colonial Bank ("Colonial" or "the Bank") and named the Federal Deposit
Insurance Corporation as Receiver ("FDIC"). Colonial’s closure was triggered by
the discovery that its largest mortgage banking customer, Taylor Bean & Whitaker
Mortgage Corp. ("TBW") had committed a massive, multi-year fraud against
Colonial, resulting in financial statements that grossly misstated Colonial’s true
financial condition. The TBW fraud left a huge hole in the assets reported on
Colonial’s books and ultimately cost the Bank enormous losses.
2. At all relevant times during this fraud, PricewaterhouseCoopers LLP
("PwC") served as the Bank’s external auditor, and Crowe Horwath LLP
("Crowe") provided internal audit services to the Bank. All the time that TBW
was carrying out an increasingly brazen and costly fraud against Colonial, PwC
and Crowe never realized that many hundreds of millions of dollars of Bank assets
did not exist, had been sold to others, or were worthless. Rather, as demonstrated
more fully below, PwC repeatedly issued unqualified opinions that Colonial’s
financial statements were fairly stated and effective internal controls were in place,
while Crowe consistently overlooked serious internal control issues and failed to
evaluate properly controls for the financing programs used by TBW. Missing huge
holes in Colonial’s balance sheet and serious gaps in internal control, PwC and
Crowe continued to perform auditing services for Colonial without ever detecting
the TBW fraud. Had they performed their auditing work in accordance with
applicable professional standards, they would have learned of the TBW fraud in
time to prevent additional losses suffered by Colonial at the hands of TBW.
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