PricewaterhouseCoopers LLP agreed to pay $50 million to settle charges that it helped Raytheon Co. hide cost overruns five years ago, according to the Boston Globe.
In some ways, PwC took one for its peers, the paper asserted. At trial — pursuant to a class-action securities fraud lawsuit brought by New York State — it was likely that industrywide complaints about conflicts of interest would be raised.
PwC denied any wrongdoing in settling the case. “We stand behind our work and would note there have not been any restatements pertaining to the litigation,” spokesman Steven Silber told the Globe. “We recognize that lawsuits of this nature, and the need to settle them in order to avoid the costs and distractions of protracted litigation, are unfortunate realities of today’s business environment.”
Earlier this month, Raytheon agreed to pay $210 million in cash and $200 million in warrants to settle claims against the defense contractor, chief executive officer William Swanson, and former chairmen CEOs Dennis Picard and Daniel Burnham, according to press accounts. The company also denied wrongdoing.
Raytheon shareholders sued the company and PwC in late 1999. They alleged that Raytheon failed to quickly disclose its difficulties with Pentagon contracts and heavy construction projects, according to WebCPA. When Raytheon eventually described all the charges it needed to take, added the website, the company’s stock fell 44 percent in a single day.
The plaintiffs were led by Alan Hevesi, New York State’s comptroller. Hevesi reportedly noted that the lawsuit provides another argument for auditor independence; it claimed that PwC was compromised by its desire for a consulting contract with Raytheon, according to the report.
The Globe observed that plaintiffs’ lawyers were beginning to focus on the role of Raytheon chief financial officer Edward Pliner, who was the auditor’s lead partner on its work for Raytheon before leaving to join the defense contractor as its controller in April 2000. Two years later, he was named CFO, according to the report.
According to plaintiffs’ court filings, while Pliner was still at PwC, the audit firm pushed to win tens of millions of dollars in consulting fees not related to audit work, the paper reported. Plaintiffs’ also cited a memo by Pliner in October 1998, which pointed out that for the auditor to achieve goals such as the consulting contracts, it must focus on “improving our relationships with senior management at Raytheon… to be viewed as their primary adviser on these issues and win significant work,” added the paper.
Attorneys for PricewaterhouseCoopers had argued in court filings that lower-level PwC auditors who directly oversaw Raytheon’s construction unit weren’t even aware of the attempts to obtain the consulting work, reported the Globe/ Defense attorneys also noted that Pliner wasn’t contacted by Raytheon about a job offer until February 2000, so he wouldn’t have been influenced by such an incentive earlier, the paper added.
Both settlements still require final approval from Boston federal district court judge Patti Saris. If they are accepted, the combined settlements would be the fifth-largest recoveries in such shareholder litigation, according to the Globe, which cited figures from Stanford University law school.