Auditing

PwC to Pay $182.9M for Coopers Audit

Federal judge holds PricewaterhouseCoopers fully responsible for a predecessor firm's negligent audit 20 years ago.
Stephen TaubOctober 3, 2005

PricewaterhouseCoopers must shell out $182.9 million for the failures of its predecessor Coopers & Lybrand, according to the Associated Press.

In July, a federal jury found that Coopers & Lybrand was negligent in its audit of Ambassador Insurance Co. 20 years ago, reported the AP. The jury awarded $119.9 million to Ambassador policyholders and other creditors, including the state of Vermont, where the company was headquartered; U.S. District Judge Harold A. Ackerman added $63 million in interest.

According to the wire service, the jury assigned liability 60/40 between Arnold Chait, the Ambassador president accused by Vermont of mismanagement, and Coopers & Lybrand. Chait died about a decade ago and his estate is believed to have few assets, the AP noted, so Vermont asked Judge Ackerman to find that PwC and the estate could each be considered fully responsible for the entire amount.

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Ackerman agreed, noting that the jury accepted that the allegations against the audit firm were “inextricably intertwined with the conduct” of Ambassador’s late president, according to the report. Coopers & Lybrand and Chait should have told the public as early as 1982 that Ambassador was insolvent, but instead worked to “create the illusion of a financially sound and growing corporation,” according to the report.

The money will help pay claims of thousands of policyholders of Ambassador, which was seized by Vermont’s insurance department in 1983 after the state determined that it was insolvent. “If this holds up, it should make them all whole,” Richard Whitney, a lawyer for the insurance department, told the AP. However, he did warn that “it’s a moving target, because we continue to receive claims.”

PwC spokesman David L. Nestor told the wire service that “the verdict and judgment are incorrect, and we will seek appeal if the trial court does not set them aside.”