Auditing

E&Y Settles PNC Accounting Suit

The settlement likely marks the end of litigation involving the bank's multimillion-dollar restatement for 2001.
Stephen TaubApril 13, 2007

Ernst & Young has agreed to pay $9.08 million to settle a class-action lawsuit stemming from an accounting scandal at PNC Financial Services Group, according to published accounts.

The settlement likely marks the end of litigation involving the bank’s multimillion-dollar restatement for 2001. Some 22,000 PNC investors have recovered a total of about $203 million, according to Reuters, which cited Barry Weprin, a partner at Milberg Weiss & Bershad and the plaintiffs’ lead lawyer.

Ernst & Young reportedly stated: “This is a reasonable resolution relating to events that occurred approximately five years ago. It puts this matter behind us.”

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In a related proceeding, last month the Securities and Exchange Commission announced that Ernst & Young agreed to pay nearly $1.6 million to settle civil charges that it violated auditor independence standards through its work with American International Group and PNC Financial Services Group.

The SEC complaint charged that in 2001, an Ernst & Young partner helped AIG to develop and market an accounting-driven financial product, then advised PNC on the accounting treatment for that product in PNC’s financial statements.

In 2001 AIG sold three such products to PNC, which as a result improperly excluded certain assets from its consolidated financial statements, according to the SEC. Specifically, Reuters reported, PNC unit ICLC Corp. fraudulently moved $762 million of soured loans and investments off its balance sheet, boosting profit by $155 million.

In 2003 PNC agreed to pay $115 million to settle criminal charges with the Department of Justice and entered into a deferred prosecution agreement, the wire service noted. The following year, AIG reportedly agreed to pay $126 million to settle with the Justice Department and the SEC.

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