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Price Waterhouse Cooper (PwC)is being sued for a record $5.5bn for failing to detect fraud that led to a bank collapse during the global financial crisis, in a case that could bring more auditing firms into the line of fire, the Financial Times reported today. The case — the biggest against an auditing firm — has been filed in a Florida state court on behalf of a trustee of Taylor, Bean & Whitaker (TBW), a defunct mortgage underwriter, and accuses PwC of failing to catch a multibillion-dollar conspiracy between Lee Farkas, the company’s founder, and executives at Colonial Bank, an Alabama-based lender that supplied TBW with loans. PwC gave the bank’s parent, Colonial BancGroup, a clean audit opinion every year from 2002 to 2008. Colonial collapsed in 2009, becoming the sixth-largest U.S. bank failure in history. According to TBW’s trustee, PwC certified the existence of more than $1bn of Colonial Bank assets that did not exist, that had been sold or were worthless. Steven Thomas, lead trial lawyer for the trustee, described the case as “particularly egregious” given that Dennis Nally, who retired last month after eight years as PwC’s global chairman, told the Wall Street Journal in 2007 that the “audit profession has always had a responsibility for the detection of fraud.”

International authorities are participating in investigations into Miami-based Providence Financial Investments and its affiliates, which took in the life savings of hundreds of U.S. investors in an investment scheme involving Brazilian “factoring,” the Miami Herald reported today. The company filed for U.S. bankruptcy protection last week following actions by the U.S. Securities and Exchange Commission to shut it down. On Monday, the Royal Court of Guernsey ordered the appointment of “administrative managers” for Providence Investment Funds and its manager company, Providence Investment Management International Limited. Guernsey, a resort area and financial center, is one of the British Channel Islands where Providence operations were based and where it was actively soliciting investors until late July. The court was acting on the “urgent” request of the Guernsey Financial Services Commission, Guernsey’s regulatory body, and followed the fund’s suspension and resignations of Providence’s directors there on Aug. 4 and 5, less than a week after the company’s U.S. Miami-based unit declared bankruptcy. Read more. 

For a further analysis of uncovering commercial fraud, make sure to pick up a copy of ABI’s Fraud and Forensics: Piercing Through the Deception in a Commercial Fraud Case. 

PricewaterhouseCoopers LLP failed to spot for seven years a multibillion fraud that led to the demise of Taylor Bean & Whitaker Mortgage Corp., a lawyer for the lender’s bankruptcy trustee told a Miami jury yesterday, Bloomberg News reported. At issue is PwC’s work for Colonial Bank, which bought mortgages that Taylor Bean originated. Had PwC adequately vetted documents that Taylor Bean gave to the bank, it would have spotted a multiyear fraud by executives at both firms far earlier and put an end to it, the trustee claims. Instead, federal regulators uncovered it in 2009 and Taylor Bean and Colonial went bankrupt. The bankruptcy trustee sued in 2013 seeking $5.6 billion in damages. “Year after year, Pricewaterhouse didn’t do their job, they didn’t follow the rules and they failed to detect the fraud,” Steven Thomas, an attorney for the trustee, said in opening statements. PwC maintains it complied with auditing standards in the Taylor Bean case and accused the mortgage issuer of being responsible for its own losses. Taylor Bean, once the 12th-largest U.S. mortgage lender, collapsed after federal regulators uncovered a $3 billion scheme involving fake mortgage assets. Six Taylor Bean executives were convicted and jailed for their roles in the fraud, including former chairman Lee Farkas, who was sentenced to 30 years in prison.

U.S. securities regulators are investigating and preparing to bring a civil case against Edwin K. Chin, a mortgage bond trader who was fired from Goldman Sachs Group Inc. in 2012, Bloomberg News reported yesterday. The U.S. Securities and Exchange Commission and the U.S. Justice Department have been cooperating on a probe of Chin’s activities at Goldman Sachs. The SEC is preparing the case, and the two sides may try to reach a settlement. Investigators found Chin may have inflated prices on mortgage bonds acquired by the bank, allowing him to trade the securities for a greater profit. The trades occurred after the 2008 financial crisis, according to sources.

The U.S. film company that produced “The Wolf of Wall Street” reached a deal with the Justice Department yesterday to keep separate its future earnings from the film pending the outcome of the government’s civil asset-seizure cases tied to a Malaysian investment fund, according to a filing, the Wall Street Journal reported. The government last month filed cases to seize more than $1 billion of assets allegedly acquired with funds embezzled from 1Malaysia Development Bhd., a Malaysian sovereign-wealth fund that is at the center of corruption and money-laundering inquiries in at least seven countries. Among the assets was all future income from “The Wolf of Wall Street” due to Red Granite Pictures, which the government said used money siphoned from 1MDB to finance the film. The film has grossed $400 million, though it is unclear how much of that went to Red Granite. Under the agreement, Red Granite will ring-fence future income from the film. The amount may be relatively small — in the millions of dollars — through sales to television networks and video-on-demand companies such as Netflix.

U.S. authorities have issued subpoenas to Goldman Sachs Group Inc. for documents related to the bank’s dealings with a Malaysian investment fund at the center of an international corruption scandal, the Wall Street Journal reported today. Goldman received the requests for information earlier this year from the U.S. Justice Department and the Securities and Exchange Commission, the person said. Investigators have also subpoenaed a Goldman banker who worked closely with the Malaysian fund. The authorities also want to interview current and former Goldman employees in connection with the inquiries, though by Friday none of those meetings had occurred. Goldman Sachs is also providing information to the Monetary Authority of Singapore, the city-state’s central bank and financial regulator that also has inquired about the firm’s work for the fund in question—1Malaysia Development Bhd., or 1MDB.