PricewaterhouseCoopers LLP has agreed to pay $54.5 million to settle its part of a class-action lawsuit that contends the accounting firm overcharged its clients for travel-related expenses.
The lawsuit also names Ernst & Young LLP, KPMG LLP and two other defendants for fraudulently overbilling clients by millions of dollars collectively, the Wall Street Journal reported. PwC’s preliminary agreement is the first settlement in the case, which was filed in state court in Texarkana, AR. A separate investigation by the U.S. Department of Justice is ongoing.
The lawsuit details the practice of professional-service firms negotiating significant rebates with travel companies and credit card companies, overcharging their clients, and pocketing the difference without revealing the practice.
PwC denied the fraud allegations by the lead plaintiff, Warmack-Muskogee LP, a shopping mall operator, in court papers filed Friday. Like the other defendants, PwC has acknowledged keeping large rebates from airlines and other travel companies without disclosing their existence to clients. But it says it used the money to offset costs that it otherwise would have made up by charging higher hourly rates.
The firm stopped accepting airline rebates on Oct. 1, 2001, amid complaints by some partners that the practice was unethical. The firm says it had no knowledge of the Department of Justice probe or plans to file the Texarkana lawsuit at the time. PwC says it now charges clients flat administrative fees when billing for travel expenses, and that all volume discounts are passed along to clients, the Journal reported.
In court records Friday, the firm said it agreed to the settlement "to permit the operation of PwC's business without further expensive litigation and the distraction and diversion of PwC's personnel with respect to the matters in this action." KPMG and Ernst & Young, which stopped accepting airline rebates in 2002, deny the lawsuit's fraud allegations.
The settlement was based on the $72.4 million in rebates PwC received on client-related travel from 1991 through 2001. The settlement value represents about 75 percent of that amount.
"PwC has talked a lot about transparency and integrity. And I think they are stepping forward here and showing some leadership," said Lon Packard, an attorney for Warmack-Muskogee at the Salt Lake City law firm Packard, Packard & Johnson.
The two sides will attend a hearing for preliminary approval Monday in Texarkana. Final approval would come in March at the earliest.