Taylor, Bean & Whitaker former general counsel, Jeffery Cavender, engages in a heated exchange on cross exam over provisions of an agreement between the company and Colonial Bancgroup.
Miami—As the $5.5 billion accounting negligence trial against PricewaterhouseCoopers entered its third week Monday, the former general counsel of failed mortgage giant Taylor, Bean & Whitaker wrapped up two days of testimony over agreements that led to the company’s collapse, and caused one of the biggest bank failures of the Great Recession era. Taylor Bean & Whitaker Plan Trust v. PricewaterhouseCoopers LLP, 2013-033964-CA-01.
“Taylor Bean, again, always looked to diversify its funding. At that point in time it didn’t have a lot of options. And Colonial Bank was the option,” Jeffery Cavender, former Taylor Bean general counsel, said Monday on cross exam while explaining the company’s reliance on Colonial Bank as its primary funding source, prior to the collapse of the two institutions. “You have to remember the time we’re in, and this is the 2008, 2009 time frame and it was a very difficult time, very difficult economy, [and] a very difficult time for all financial institutions.”
Taylor Bean, once one of the country’s largest wholesale mortgage lenders, collapsed in 2009 following an FBI raid and investigation into a massive fraud scheme involving Taylor Bean’s CEO, Lee Farkas and Colonial Bancgroup, Colonial Bank’s holding company. Farkas was ultimately sentenced to 30 years in prison on federal charges stemming from the fraud, while Colonial Bank assets were seized, and Taylor Bean filed for bankruptcy.
The Taylor, Bean & Whitaker Plan Trust, established following the company's failure, claims PricewaterhouseCoopers, as Colonial’s auditor, is responsible for billions of dollars in Taylor Bean losses by failing to detect the fraud when reviewing Colonial Bank’s documents as part of the companies’ financial agreements.
However, PwC claims properly conducted audits could not necessarily find the type of carefully concealed fraud Colonial and Taylor Bean executives executed, and illegal conduct by Taylor Bean leadership rendered the trust unable to collect damages under state law.
During a tense cross-exam Thursday, King & Spalding’s Elizabeth Tanis hammered at Cavender over the terms of one of the underlying agreements between Colonial Bancgroup and Taylor Bean. Cavender acknowledged the sale required financial statements be certified by Colonial’s auditor, PwC, and the agreement provided Taylor Bean would not rely on Colonial Bank or its “accountants." However, Cavender contended that provision did not include “auditors.”
Noting auditors are certified public accountants, Tanis asked “Are you serious that you’re telling this jury that when this says accountants, it doesn’t include auditors?”
“This document does not use the term ‘auditor,’” Cavender replied, launching a heated back-and-forth between the two.
The nine-plus hours under cross exam dwarfed the time Cavender, who was never implicated in the fraud scheme, testified on direct for the plaintiff. During Thursday morning’s direct, Cavender, now a partner in Troutman Sanders’ Atlanta office, highlighted PwC audit reports indicating Colonial financial statements had no material issues. Cavender told jurors Colonial’s clean report was vital for the relationship to go forward. “It was critical for our business that our bank, our lender, our financer, have clean audits. It was absolutely critical, and if that ceased to exist it would have been devastating to our business,” Cavender said. “And in fact it was devastating.”
Cavender told jurors the fraud, once it was discovered, quickly destroyed Taylor Bean. “As soon as our funds were frozen, it put us out of business. We could not survive, given the interconnected nature of our business with Colonial.”
Trial in the case, considered potentially the largest accounting negligence case in U.S. history, is expected to continue through September.
Email Arlin Crisco at firstname.lastname@example.org.
The plaintiffs are represented by Thomas Alexander Forrester & Sorensen LLP and Texas firm Ackels & Ackels LLP, along with local Florida firms Gamba Lombana & Herrera, Gonzola Dorta PA, and Berger Singerman LLP.
PwC is represented by King & Spalding attorneys from New York, Washington DC, Georgia, California and North Carolina, including Elizabeth Tanis, along with local Florida counsel from Sedgwick LLP, Kenny Nachwalter PA, and White & Case LLP.
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