Deloitte's key auditor defense strategy might crumble

“Equal fault” principle may not pass muster

On Monday, news broke that accounting and consulting firm Deloitte Touche Tohmatsu Ltd. was named in two lawsuits alleging it failed to detect fraud during a nine-year span of audits of the now-collapsed Florida mortgage company Taylor Bean & Whitaker. But experts aren’t so sure that Deloitte will successfully defend itself if it uses a common auditor defense strategy in securities fraud cases.

A key defense among the "Big Four" auditing firms—Deloitte, Ernst & Young, KPMG and PricewaterhouseCoopers—is “in pari delicto,” or equal fault principle, in which a defendant auditor alleges that an audited company is just as much to blame for purported wrongdoing.

Although “in pari delicto” has passed muster in other courts, it may not fly in the Miami Circuit Court in which the plaintiffs filed the complaints against Deloitte. The plaintiffs’ attorney Steven Thomas told Reuters that “under Florida law, the ‘in pari delicto’ defense does not apply in cases in which the auditor has a duty to detect fraud and in which there were innocent board members who could have been alerted about the fraud.”

If “in pari delicto” or another defense isn’t successful, Deloitte could be held responsible for the fraud as an aider or abettor. The plaintiffs in the two cases are asking for $7.6 billion in damages. 

Ashley Post

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