Auditing

PwC Zapped in $97.5 Million Settlement

The auditor, accused by Ohio of violating securities laws in its work with AIG, will pay one of the highest amounts ever for an accounting firm in ...
Alan RappeportOctober 6, 2008

PricewaterhouseCoopers agreed to pay $97.5 million to the state of Ohio to settle a class-action lawsuit on behalf of investors in troubled insurer American International Group, which uses PwC as its independent auditor.

The “partial” settlement, on Friday, came after the Ohio Public Employees Retirement System, the State Teachers Retirement System, and the Ohio Police and Pension Fund filed a lawsuit seeking damages for investors who bought AIG securities from 1999 to 2005. In the complaint, PwC was accused of violating securities laws relating to a market division scheme allegedly involving AIG that was disclosed in 2004 and improper accounting for reinsurance and other transactions.

In May 2005, AIG’s accounting problems led to a $3.9-billion restatement, and removal of former CEO Maurice Greenberg.

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The settlement is among the 10 highest to be paid by an accounting firm to settle a securities fraud class action lawsuit, according to Nancy Rogers, Ohio’s attorney general. The arrangement, however, still needs to be approved by the U.S. District Court for the Southern District of New York in Manhattan.

“This important settlement represents a tremendous result for investors,” said Chris Geidner, principal assistant attorney general. “We are pleased with this milestone and will continue to vigorously pursue investors’ claims against the remaining defendants in the case.”

“We have decided to settle the case at this stage to avoid the enormous litigation costs that would be incurred if the case continued against the firm, while at the same time eliminating any potential exposure,” said Steve Silber, a PwC spokesman told The Columbus Dispatch. “The settlement does not contain an admission of wrongdoing by the firm, and we continue to believe that our work was in accordance with professional standards.”

AIG currently is facing another lawsuit filed in May by the Jacksonville Police and Fire Pension Fund. The Florida fund accused the insurer of manipulating the market by making false statements about its financial health before disclosing a first quarter loss of $7.8 billion. PwC is not implicated in that lawsuit and in February it gave a warning sign of AIG’s problems when it found that there was a “material weakness in its internal control” relating to the accounting of its credit default swaps portfolio.

Last month the U.S. government agreed to an $85 billion bail out AIG in exchange for warrants to purchase 80 percent of the company, which is selling off several units of its business to repay the loan.