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by Brian Mahany
Behind almost every story about major corporate malfeasance or illegal activity is the untold story of the audit firm who should have caught the fraud. Some stories do get told - David Friehling, the auditor to Bernie Madoff who collected millions of dollars in fees but admitted that he had not conducted an audit since as far back as 1993 is a prime example. Then there is Enron. They were audited by Arthur Andersen, then one of the five largest audit firms in the world. Enron’s failure was also the end of Andersen.
In many case, however, the story does not get told. We wonder about all the banks and mortgage companies that have been fined hundreds of millions of dollars for flagrant violations of HUD rules. Many of these banks were virtually giving anyone a loan with little or no quality control or financial verification. When the housing market collapsed, taxpayers were left holding the bag. (Most residential loans are directly or indirectly backed by taxpayers –Fannie Mae, FHA, VA, etc.) Each one of those lenders was audited annually. Why didn’t they see the obvious?
This week another one of the big accounting firms, Deloitte, was called on the carpet for turning a blind eye on Standard Chartered Bank. This is the bank under investigation in New York for allegedly scheming with the Iranian government to conceal $250 billion of transactions. Around the office we speculated who the auditor was and whether they would also get called to task. Too often they do not.
New York’s banking superintendent issued a report claiming the bank “intentionally withheld material information” and “carefully planned its deception and was apparently aided by its consultant Deloitte…”
These allegations are extremely troubling since the bank was already in trouble for the same type of activity back in 2004 and promised to hire Deloitte to perform independent reviews. If New York regulators are correct, instead of being an independent watchdog, Deloitte helped Standard Chartered Bank conceal billions of dollars of transaction with a known enemy of the United States.
According to press reports, Deloitte denies the allegations.
We have stated that the audit system is broken. There are many fine audit firms that do a great job but it only takes a few bad apples to cast a shadow on the entire industry. What is really surprising is that the government apparently let the bank pick its own consultant to review the books. This is like allowing a child sex offender to hire the cop that will investigate him. Assuming Standard violated the law back in 2004, the government should have picked the reviewer. As long as the audit firm, in this case Deloitte, is making millions from the audit, their loyalty will always be in question.
Just like with the big banks, the big accounting firms have largely outlived their usefulness. No more Bank of America. No more Deloitte. That’s our opinion.
If you have information about a public company that was improperly audited or a bank / mortgage company that was audited and erroneously received a clean bill of health for HUD compliance, we definitely want to speak with you. (We presently have the largest whistleblower case in the nation - the $2.4 billion case against Allied Home Mortgage.) Whistleblowers are entitled to a large cash award if their information leads to a recovery.
We want to hear from fraud victims as well. Often a third party such as an auditor can be held responsible for the losses of others.
The fraud recovery lawyers at Mahany & Ertl have helped many whistleblowers and victims of fraud. If you think you may have a case, contact attorney Anthony Dietz at adietz@mahanyertl.com or the author directly at (414) 704-6731. All inquiries are protected by the attorney client privilege and kept in strict confidence.
Mahany & Ertl - America’s Fraud Lawyers. Offices in Milwaukee, Wisconsin; Detroit, Michigan; Portland, Maine & Minneapolis, Minnesota. Services available in many jurisdictions.
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