• Big 4

    Is PwC on the Ropes in the MF Global Trial?

    By | March 13, 2017

    How are you, PwC?

    Week 2 in the trial between MF Global and PwC started off interestingly enough: PwC wants the judge to consider declaring a mistrial. The reason? The firm’s lawyers claim that the plaintiffs have “changed its theory of why the brokerage failed” calling it a “trial by ambush.”

    MF Global’s attorneys see it differently, of course. Here’s what Dan Fetterman, the lead attorney for MF Global said:

    “This motion is extremely untimely,” he said. “We are entitled to try causation as the evidence comes in. … This is way too late, highly prejudicial. It is gamesmanship.”

    In a statement forwarded to Going Concern by a spokesman for the plaintiffs, Mr. Fetterman added, “This is a desperate motion you make when you are losing.” (You can read a copy of the motion at the link below.)

    If you recall, PwC settled in its lawsuit with the bankruptcy trustee of Taylor, Bean & Whitaker last August in the middle of the trial. Can’t help but wonder if their lawyers find themselves on similar footing here and starting to pull out all the stops.

    Reuters quotes Judge Victor Marrero as saying, “This is obviously a major issue, a complicated subject,” and that he gave the plaintiffs until tomorrow to respond. We’ll continue to watch this story.

    [Reuters, Motion To Bar New Causation Theory]

    Correction: An earlier version of this article erroneously stated that PwC settled a lawsuit with Colonial Bank.

    • Big4Veteran

      I’ve been trying to get interested in this case, but I just can’t. At this point, any reasonable person/investor knows that a Big 4 audit opinion isn’t worth squat. So when a company blows up, people shouldn’t be surprised that the accounting firm did nothing to identify or stop the problems. There is just basic business knowledge that everyone should know at this point, such as…

      1. The stock market is basically a giant casino. Insider trading (i.e. cheating) is the only way to beat the house.

      2. If you are a little guy investing in companies, you are just riding the rich peoples’ coattails. You have no say in the direction of the company. The rich people who control the company will always act in their own best interests, which often doesn’t reconcile with your best interests. Hopefully those rich people will throw you some table scraps and you’ll get a moderate return on your investment. But sometimes MF Global or Enron happens.

      3. Our legal system is rigged to favor those in power (i.e. the people who have a lot of money). The laws were written by these people to protect these people.

      4. Audits are bullshit. Their only purpose is to give the impression of fairness and transparency. (see #1 above)

      • Caleb Newquist

        You might be right about these things, but it’s a far more interesting case than you think. The plaintiffs are motivated and have deep pockets: https://www.wsj.com/articles/hedge-funds-reach-for-gold-in-mf-global-lawsuit-against-pwc-1488798002

        I don’t think I’m exaggerating when I say that these are the type of situations that could turn out the lights for a firm. Like a Peter Thiel/Gawker situation but on a much bigger scale. In all likelihood, they’ll settle for undisclosed amount and fight another day, but who knows?

        • Big4Veteran

          I hear you, but fortunately for PwC, they are too big to fail.

          P.S. I’d read this article if I was a high roller who could afford a WSJ account.

      • Point and Clique

        Yeah. Which is why it amuses me when people take the job ultra-seriously. All of our audit methodology boils down to a few animal spirits, like the performance materiality haircut, or maximum tolerable misstatement being set at some magic percentage. Turning off your brain and using the smart documentation is the only way to succeed (and now, you have to try and make the Indian outsourcees do it first, further removing ownership/responsibility for the procedures). And the whole thing is predicated on overworked employees with diminished effectiveness who largely resent the firm. How is this supposed to produce a quality audit?

        It’ll never change.

        • Adam Hill

          Agreed. Pick the holes in the following audit approach:

          Audit the balance sheet at the beginning of the year and the end of year (new client, or new to being audited). Reasonableness test for the income statement, such as interest, depreciation, gross margin (even that can be questioned).

          Outside of income statement classification, what would be missed that isn’t already missed now? I would argue that more time could be spent on the balance sheet and you would get a more accurate audit. Plus you wouldn’t have to spend 75% of the budget on the fucking general file and making sure that the “find/replace” worked properly for the year under audit.