Ernst & Young LLP will pay $125 million to settle claims stemming from its involvement in the failure of an Illinois savings bank, according to a consent order with the Office of Thrift Supervision.
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The Big Four accounting firm will pay $85 million to the Federal Deposit Insurance Corp., which served as receiver for the failed Superior Bank FSB of Hinsdale, Ill., Reuters reported. Ernst & Young, which audited the bank, will also pay $40 million in restitution to the FDIC.
The Office of Thrift Supervision, or OTS, closed Superior in 2001, saying the thrift had become "critically undercapitalized, largely due to incorrect accounting treatment and aggressive assumptions in its valuation of residual assets in the securitization of subprime mortgage loans."
In December of 2001, Superior Bank's owners agreed to pay the FDIC $460 million over 15 years to settle any potential claims. When the bank failed, it had about $2 billion in assets.
Ernst & Young said it has already made changes to the way it audits savings and loan associations to comply with the OTS consent order, and is implementing the changes throughout its entire bank audit practice. The changes include dedicating more technical resources to the practice and strengthening "our client acceptance and reacceptance procedures," spokesman Charles Perkins told Reuters in New York.
Ernst & Young did not admit or deny that its audits in the Superior Bank case failed to comply with any professional accounting standards. The firm said it was settling to cooperate with regulators and to ensure the firm had “the strongest policies and procedures to serve our clients and the public interest."