Risk & Compliance

PwC to Pay Investors $55M Over Madoff Losses

The settlement averts a trial of investor claims that PwC failed to properly audit the books of the largest operator of "feeder funds" to Madoff.
Matthew HellerJanuary 8, 2016

After seven years of litigation, PricewaterhouseCoopers has agreed to pay $55 million to settle charges that it was negligent in auditing the books of Fairfield Greenwich Group, the largest operator of “feeder funds” to convicted swindler Bernard Madoff.

The settlement adds to the recovery for investors in Fairfield-managed funds, who, according to their attorney, lost more than $3.2 billion in the 2008 collapse of Madoff’s Ponzi scheme. They also reached an $125 million accord with hedge fund administrator Citco Group, and an $80.3 million accord with Fairfield.

“We believe that this recovery of $235 million for the Fairfield investors is the largest recovery that has been obtained on behalf of any group of Madoff feeder fund investors,” investor attorney David Barrett told the Wall Street Journal.

The investors’ claims against various PwC affiliates had been set for trial this week. “We believe strongly that our audit work complied with professional standards, but we pursued a settlement to avoid the uncertainties and unrecoverable legal costs of a lengthy jury trial,” PwC Canada said in a settlement.

About 95% of the $7 billion managed by the Fairfield funds was invested with Madoff. In a class action lawsuit filed in January 2009, Fairfield investors alleged the PwC units that audited the Fairfield Sentry, Fairfield Sigma, Fairfield Lambda, and Greenwich Sentry funds from 2002 to 2007 wrongly gave them a clean bill of health and failed to uncover that the funds’ investments with Madoff were based on phony transactions.

In the first trial of an auditor arising from Madoff’s Ponzi scheme, a Washington state jury in November found Ernst & Young liable for the losses of an investment firm that invested $200 million with Madoff through a feeder fund.

Tremont Group Holdings was the second-biggest feeder into Madoff’s fraud after Fairfield Greenwich Group.