MIAMI (CN) – Deloitte & Touche made “grossly negligent audits” for seven years that allowed executives at Taylor, Bean & Whitaker to “perpetrate a massive fraud” of over $6 billion that led to bankruptcy, new lawsuits claim in Miami-Dade Court.
A trustee for the now-bankrupt Taylor, Bean & Whitaker (TBW) filed one of the complaints against Deloitte & Touche, and Taylor Bean’s lending facility, Ocala Funding, which had no employees of its own, filed the other lawsuit. Both plaintiffs seek damages and rescission of contract for professional malpractice and for aiding and abetting breach of fiduciary duty.
TBW took its principal income from selling loans it serviced or securitized for investors, relying on other lenders to finance operations. It created Ocala in 2005 for additional financing.
Before the firm went under in August 2009, its auditors at Deloitte certified financial statements for TBW and Ocala that were “completely false,” according to the complaint. Deloitte also allegedly failed to reveal that Taylor Bean Chairman Lee Farkas and others had “looted” TBW and Ocala, according to the complaint.
“Deloitte’s negligence and willful blind eye was the fuel without which the looters’ fraud would have sputtered out long before it resulted in the multi-billion dollar debt under which TBW collapsed,” the trust claims.
“The red flags that Deloitte willfully ignored were due to the looters’ breaches of fiduciary duty and all of them demonstrated that TBW was engaging in atypical business practices lacking in business justification,” according to the complaint.
Ocala says, “Deloitte missed this fraud because it simply accepted management’s conflicting, incomplete and often last-minute explanations of highly-questionable transactions, even though those explanations made no sense and were flatly contradicted by the documents in Deloitte’s possession.
“Deloitte repeatedly ignored what it now admits were red flags in conscious and reckless disregard of its public duty – and simply failed to do its job,” it added.
Deloitte’s erroneous audits allowed TBW to take on debt it could not pay back, and Ocala did not have the collateral it needed for the funds it borrowed, the complaints state.
Deloitte resigned in 2009 after refusing to complete an audit because the looters refused to provide necessary information, but the company never revealed the fraud nor disclosed that previous audits may be unreliable, according to the trust.
“Deloitte’s decision to stay silent in the face of its duty to correct its prior misrepresentation resulted in additional billions being looted and added to the debt TBW could not repay,” the complaint states.
A series of former TBW staffers were sentenced to prison this spring for their role in the fraud. Farkas got 30 years following an April conviction for masterminding the scheme. He also faces a civil action filed by the Securities and Exchange Commission.
The TBW trust and Ocala are represented by Steven Thomas with Thomas, Alexander and Forrester of Venice, Calif.