Deloitte to pay $ 149.5 million to settle mortgage lender Taylor Bean audit case

Deloitte & Touche has agreed to pay the federal government $ 149.5 million to settle potential liabilities related to its audits of Taylor, Bean & Whitaker Mortgage Corp.

The Justice Department announced the settlement on Wednesday over the company’s work in auditing the collapsed mortgage originator.

Deloitte audited Taylor Bean for fiscal years 2002 to 2008. Prosecutors alleged that during this period the mortgage lender engaged in a long-standing fraud scheme involving the sale of fictitious or double-pledged mortgages. . As a result, Taylor Bean’s financial statements did not reflect the company’s severe financial distress. Prosecutors say Deloitte’s audits deviated from relevant auditing standards and failed to detect Taylor Bean’s fraudulent conduct and deceptive financial statements. They alleged that Deloitte’s audit failures extended to the specific financial arrangements through which Taylor Bean conducted his fraudulent conduct. By failing to detect corporate misconduct, Deloitte’s audit reports would have allowed Taylor Bean to continue to issue Federal Housing Administration insured mortgages until Taylor Bean collapses and declares bankruptcy in 2009.

As part of the Department of Housing and Urban Development’s direct endorsement loan program, Taylor Bean was authorized to create and underwrite Federal Housing Administration insured mortgages. When a borrower defaults on an FHA insured loan underwritten and approved by a lender such as Taylor Bean, the loan holder can submit a claim to the federal government to recover losses resulting from the default. To maintain its status as a Direct Endorsed Lender, a lender is required to submit to HUD annual audit reports on its financial statements and related reports on its internal controls and compliance with certain HUD requirements.

“With taxpayer dollars at stake, auditors need to take their obligations seriously when auditing companies that participate in government programs,” said Acting Deputy Attorney General Chad A. Readler for the civil division of the ministry. of Justice, in a press release. “When auditors fail to exercise professional judgment and make false claims that allow bad actors to stay in government programs and submit false claims to government, there will be consequences. “

Several Taylor Bean officials have been convicted of this conduct.

Deloitte defended its audits. “Members of the management of Taylor Bean & Whitaker, including its CEO, have been convicted of engaging in complex and collusive fraud with a counterpart bank aimed specifically at deceiving our organization and our investors,” said a Company statement emailed by spokesperson Jonathan Gandal. “Deloitte & Touche is deeply committed to the highest standards of professionalism and we support this work that dates back over a decade. Nonetheless, we are pleased to have resolved this matter to avoid the risk and uncertainty of protracted litigation. “

The case also trapped PricewaterhouseCoopers, which had audited Colonial Bank, a financial institution that bought mortgages from Taylor Whitaker. PwC reached a multibillion-dollar settlement with trustees for bankrupt Taylor Whitaker in 2016 who sued the company for more than $ 5 billion (see PwC Reaches Settlement in Taylor Bean Lawsuit). In January, a federal judge also ruled that PwC had been negligent in its audits of Colonial, which failed in 2009 (see PwC ruled negligent in the Colonial Bank audit case).

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