Bank Auditor Whacked with Fine — But Not Enough

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EDITOR’S COMMENT: Besides the ratings agencies, the main backstop against the fraud that was allowed to mushroom into a colossal meltdown were the auditors who simply didn’t do their jobs. If the MBS market for too difficult for them to understand, then neither the ratings agency nor the auditor should have been willing to issue an opinion. The potential liability in civil suits as well as the possibility of criminal charges looms large now.

PricewaterhouseCoopers has paid too small a price

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Regulator’s record fine of £1.4m for auditor in JP Morgan Securities case is not big enough to make an impact on PwC

PricewaterhouseCoopers has got off lightly in the JP Morgan Securities case. Mixing clients’ money with a bank’s own is a serious matter, which is why the Financial Services Authority (FSA) last year whacked the US bank’s UK broking division with a £33m fine. The failures ran for seven years and an average of £5bn of clients’ cash was potentially at risk every day. A record penalty, big enough to be noticed by the bank’s bigwigs, was entirely in order.

Now consider the size of the penalty for PwC, which consistently gave false reports to the FSA that clients’ assets at JP Morgan Securities were properly segregated. The industry’s independent regulator, the Accountancy and Actuarial Discipline Board, pondered mightily and decided that PwC also deserves a record fine. But, in the AADB’s case, the sum turns out to be £1.4m, small enough to be lost in the wash at a firm the size of PwC.

OK, PwC wasn’t the principal – JP Morgan was. Nor was there any suggestion of fraud. As the report puts it, PwC simply did not carry out its work “with due skill, care and diligence and with proper regard for the applicable technical and professional standards expected of it”. Even so, it’s astonishing that the regulator, in a case involving billions of pounds of other people’s money, can regard £1.4m as an appropriate penalty for an auditor.

The FSA’s fine on JP Morgan Securities (the main non-US broker/dealer of the US bank) represented 6.9% of the firm’s profits last year. On the same basis, PwC would be writing a cheque for £44m, or £40,600 per partner, which would certainly concentrate minds.

The AADB deemed such an approach to be “irrational”. That’s fair enough, since there’s no logical basis for dishing out fines solely on the basis of a company’s profits. On the other hand, fines have to be big enough to be felt.

The AADB seems jolly pleased with itself for securing what it regards as a substantial hike in potential penalties in cases such as this. Think again, chaps: if you’d opted for £6m, one of the sums considered during the disciplinary hearing, the boast might have some weight. But £1.4m looks feeble.

 

5 Responses

  1. of course like your web site but you have to take a look at the spelling on quite a few of your posts. Many of them are rife with spelling issues and I in finding it very troublesome to inform the reality however I’ll certainly come again again.

  2. Carie. I always love your comments. It’s all so confusing but your posts remind me of what didn’t happen that caused this mess. Like the funding etc. I’m trying to figure out, when my loan closed at the title company, where would the $242,000 come from that the seller received? My lender shows as CIT. Did they send it? Thank you Carie

  3. Well, the “investors” didn’t “loan” the money…they gave it to the “banks”—who kept it—and then the homeowners were given what amounts to a “line of credit”…”no funding”…so—no rights to repossession…but they are doing it anyway…

  4. It is not that we have more commmon sense it is that our entire government and judicial system is loaded with people put in place by criminal enterprises to protect the criminals and not the people, We are fighting a huge organized criminal enterprise. The crime has come to surface by all the protestors in their homes and on OWS and Occupy foreclosed homes, and all the good attorneys and people fighting on the internet and causing an awareness. I dont believe for one minute this is not the same crime in the 1930’s it has just gained momentum and the people have gained access to the truth by internet. Some people are just waking up to this crime everyday. still hoping the mod plans will save their homes, when we all now that has been a tool used by the servicers to steal houses not to help the homeowners. HAMP was used as a tool to steal homes, not help the distressed homeowner. The criminal entity banks are accountable for the stealth of the wealth from the investor that really loaned the money to the homeowners stolen properties. left to defend our properites from these criminal enterprises, As for the Escheat law. These properties will never be able to be flinked to whom loaned the money. By law due to their own hands the banksters have breached the contracts from the day of inception so the homeowner owns them by law. The bankster owe the income earners the income makers and the homeowners and investors restitution for their crimes including the homeowners mortgages clear titled. By law the homeowner can and must prove they own the property. We should not and must not be forced to rent our own homes. As for a free house, as we all well know, our mortgages will not come free, it will come with the scariest worst battle of our lives, with numbed faces, sleepless nights for days, months, years, our entire family, and neighbors and relatives tramatized by this crime. These mortgages have not come free, however the stolen houses have been stolen for free by the servicers foreclosures, that paid nothing for them in the thousands upon thousands enabled by our judicial system, our government officials breaching their oaths of office to protect the consumers and tax payers, until the obvious has caused the truth to come out and justice may and should prevail after suicides, deaths of Americans, homeless in unpresidented ammounts, and the worst toll on American homes and people in our history. All due to greed! Not common sense. .

  5. That’s why I keep saying that going after the corporations isn’t enough: we need to go after the individuals. Corporations are nothing. The mess wasn’t created by “corporations” but by individuals.

    Until governments and regulatory agencies get that, any fine will keep on being grossly unsatisfactory and inadequate.

    Sheeeeshhh! Do you realize that, collectively, we have more common sense than any government and/or regulatory agency. WTF do we need them for?

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