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MIAMI (Reuters) - Deloitte & Touche LLP has settled lawsuits alleging its audits failed to detect fraud at one of the biggest private mortgage companies to collapse during the U.S. housing crash.
A trustee overseeing the bankruptcy of Taylor Bean & Whitaker Mortgage Corp sued Deloitte in September 2011 claiming the accounting firm's audits contributed to some $7.6 billion in losses at the now-defunct mortgage lender.
Lawsuits were also brought by Ocala Funding, a wholly-owned Taylor Bean subsidiary, and Deutsche Bank, which invested in Ocala's asset-backed promissory notes.
The lawsuits brought by Deutsche and Ocala were scheduled to go to trial on October 21.
The cases were settled "to the mutual satisfaction of all parties," Steven Thomas, an attorney for the plaintiffs, said in an emailed statement.
Deloitte spokesman Langdon Cook also confirmed the settlement. Terms were not disclosed.
The trustee's lawsuit alleged Deloitte was "grossly negligent" in its audits of Taylor Bean, the 12th-largest mortgage company in the United States before its collapse in 2009.
Two years later, Lee Farkas, Taylor Bean's former chairman, was convicted on fraud charges and sentenced to 30 years in prison.
Prosecutors said Farkas ran a wide-ranging fraud to cover up large losses at Taylor Bean that eventually led to the company's downfall and the collapse of one of the largest U.S. regional banks, Alabama-based Colonial Bank.
Regulators said Farkas moved funds between accounts at Colonial Bank, which provided financing to Taylor Bean. He also sold mortgage loans that either did not exist, were worthless or had already been sold, prosecutors alleged.
The fraud was discovered during a Deloitte audit in 2009. Taylor Bean was later accused of improper lending practices.
The complaint by Ocala said Deloitte, which started auditing Taylor Bean in 2001 according to court documents, failed to properly scrutinize the lender's books.
"Deloitte missed this fraud because it simply accepted management's conflicting, incomplete and often last-minute explanations to highly-questionable transactions," the complaint said.
When the Taylor Bean trustee and Ocala lawsuits were filed, a Deloitte spokesman said the plaintiffs in the cases were "companies through which convicted felon Lee Farkas and his co-conspirators committed their crimes."
"To sue the outside auditors they lied to defies common sense, not to mention the law," the spokesman said at the time.
(In headline, corrects "lawsuit" to "lawsuits")
Additional reporting by Nate Raymond; Writing by Kevin Gray