Accounting & Tax

PNC to Settle Shareholder Lawsuit

In partnership with AIG, the company had created three special-purpose entities to improperly remove $762 million of underperforming loans from its...
Stephen TaubAugust 15, 2005

PNC Financial Services Group has proposed settling a shareholder class-action lawsuit stemming from its 2001 accounting scandal, according to press reports.

Attorneys for investors and Pittsburgh-based PNC filed court papers asking Judge David S. Cercone of the Western District of Pennsylvania to approve the addition of $36.6 million to an existing $156.4 million restitution fund. If the judge approves the agreement, as many as 73,000 shareholders would receive about 68 cents per share, according to the Pittsburgh Tribune-Review.

The shareholder lawsuit a 2002 investigation by the Securities and Exchange Commission, which found that PNC had created three special-purpose entities to improperly remove $762 million of underperforming loans from its balance sheet, reported the Tribune-Review. When the Federal Reserve forced PNC to account for those assets properly, the company restated its 2001 earnings downward by $155 million.

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Without admitting or denying wrongdoing, PNC agreed to a formal settlement with the SEC, the Federal Reserve, and the Office of the Comptroller of the Currency. PNC also paid $115 million to settle criminal charges brought by the Department of Justice; $90 million of that figure was applied toward the restitution fund.

Last November, American International Group Inc. — which created the special-purpose entities in partnership with PNC — agreed to pay $80 million to settle Department of Justice charges stemming from those structured deals and similar partnerships between AIG and BrightPoint Inc. AIG also agreed to pay $4 million toward the restitution fund, according to the newspaper, in addition to more than $40 million in disgorged fees from the PNC transactions.

AIG was not named in the lawsuit against PNC, noted the Tribune-Review, but shareholders are planning to sue it, too, according to court documents. The paper also reported that a separate shareholder lawsuit is pending against Ernst & Young, which reviewed the questionable loan sales. Last December, the Big Four firm confirmed press reports that it had faced questioning by the SEC about the its involvement in designing and auditing financial products for PNC.