Audit Firm Settles $50 Million Class-Action Suit
In a case that illustrates what used to be common practice before Sarbanes-Oxley became law, Big Four accounting firm PricewaterhouseCoopers agreed to pay $50 million to settle a class action suit involving its former audit client Raytheon.
New York State Comptroller Alan Hevesi’s office issued a statement announcing the settlement agreement. Raytheon was accused of engaging in improper accounting techniques to cover up mounting losses, which later cost investors millions of dollars when the company’s true financial condition was revealed.
PwC was accused of looking the other way despite numerous red flags when it issued a clean audit opinion on Raytheon’s 1998 financial statements.
PwC’s independence was compromised when it went after a lucrative non-audit consulting contract from Raytheon just before it issued the clean opinion—a practice later limited by Sarbanes-Oxley, the Business Review of New York reported.
Earlier this month, Raytheon agreed to pay $410 million in cash and warrants to settle all claims against the company and its former top executives, the Business Review reported, adding the settlement is pending court approval.
Hevesi, who is the sole Trustee of the New York State Common Retirement Fund, is the court-appointed lead plaintiff in the class action lawsuit, which is pending before Judge Patti B. Saris in the U.S. District Court for the District of Massachusetts, the Business Review reported.