Auditing

Judge Finds That PwC Withheld Data

Telxon settled a shareholder lawsuit last year, then turned around and sued the Big Four firm for not conducting its audits in accordance with GAAP.
Stephen TaubJanuary 13, 2005

A federal judge “considered, but cannot recommend, any lesser sanction than the entry of default judgment” against PricewaterhouseCoopers for failing to turn over evidence in a lawsuit against a former audit client, reported The New York Times.

In 1998, shareholders of Telxon Corp. sued the maker of bar-code readers after it restated its earnings. The company, which was acquired by Symbol Technologies Inc. in 2000, settled with its shareholders last year, then turned around and sued PwC for not conducting its audits in accordance with generally accepted accounting principles, according to the Times. Shareholders filed a separate lawsuit against PwC.

U.S. Magistrate Judge Patricia A. Hemann “considered, but cannot recommend, any lesser sanction than the entry of default judgment” against PricewaterhouseCoopers for failing to turn over evidence in a lawsuit filed by former audit client Telxon Corp. and by Telxon shareholders, according to The New York Times.

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U.S. Magistrate Judge Patricia A. Hemann addressed her nonbinding recommendation — a default judgment against PwC — to U.S. District Judge Kathleen O’Malley in July, but the documents were unsealed by O’Malley only this week, the Times added.

“In some cases, it is difficult to avoid the conclusion” that PwC “engaged in deliberate fraud,” Hemann reportedly wrote, adding that “there is strong evidence that documents have been destroyed, placing plaintiffs and Telxon in a situation which cannot be remedied.”

In a statement, PricewaterhouseCoopers reportedly responded that it “respectfully disagrees with the magistrate judge’s report and recommendation. We have filed extensive objections with the district court judge to the magistrate judge’s recommendation. We acknowledge an error in discovering and producing documents in the litigation later than that should have occurred. At the same time we believe that our objections to the magistrate judge’s recommendation are well-founded.”

If O’Malley adopts Hemann’s recommendation, the lawsuit will consider damages, according to the Times, citing Jeffrey Zwerling, whose law firm — Zwerling, Schachter & Zwerling — is representing shareholders. He estimated the damages at $139 million, the paper added.