PwC Ordered To Pay $10 Million For Negligence

Big Four firm PricewaterhouseCoopers has been hit with a judgment for negligent misrepresentation in a case relating to the firm's involvement in the collapse of Boston-based The Mariner Health Group. The firm was fined $10,000,004 but was found not guilty of fraud and racketeering.

The case stems from a 1995 sale of nursing facilities to the Mariner Group by two Georgia businessmen and brothers, Samuel B. Kellett and Stiles A. Kellett Jr., who took the bulk of their proceeds in shares of Mariner. PwC was Mariner's accounting firm. Mariner filed for Chapter 11 bankruptcy in 2000, five years after the Kellett transaction. The Kelletts claim that Mariner's financial woes were hidden through artificial inflation of profits on the company's financial statements and that Mariner was aided in this deception by its auditors, Coopers & Lybrand, now part of PwC. In addition, the accountants were charged with wire fraud, mail fraud, and theft by deception.

PwC's attorney's argued that the Mariner bankruptcy was caused by changes in federal regulations that reduced reimbursements for nursing home patients.

The Kelletts and their attorneys sought over $400 million in damages, plus attorney fees. In addition, they requested that PwC be prevented from doing business in Georgia. The Kelletts were awarded $10 million, which was ordered to be placed in trusts for the Kellett children. The brothers were each awarded $1 in damages and each of two Kellett partnerships were also awarded $1.

The jury did not strip PwC of its license to do business in Georgia. Also, the jury cleared a PwC partner and three former executives of Mariner of racketeering, fraud, breach of fiduciary duty and negligent misrepresentation charges. Elizabeth V. Tanis, who defended PwC and the PwC partner, said, "We are very pleased with the verdict in connection with the fraud and RICO allegations."

PwC is considering appealing the decision.


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