Old Landsbanki to sue PriceWaterhouseCoopers for ‘deliberate’ auditing errors

The resolution committee of the failed Icelandic bank Old Landsbanki has subpoenaed the international auditing firm PriceWaterhouseCoopers, accusing the company of creating wrong annual accounts which misled the markets. The committee’s damages claim runs to hundreds of millions of krónur.

The subpoena is around 90 pages long, RÚV reports, and it claims that the misleading of markets about the strength of Landsbanki led to greater losses in the Icelandic financial crash than would otherwise have been the case. Landsbanki used PriceWaterhouseCoopers as its external independent auditors in the years before the crash.

The company is accused of having known about Landsbanki’s precarious position at the end of 2007, some nine months before it went under. It is also claimed that companies owned by Björgólfur Guðmundsson and his son Björgólfur Th. Björgólfsson, the largest owners of Landsbanki, were kept afloat with deception and overdraft loans.

The resolution committee calls into question how the bank’s 2007 report and its 2008 quarterly reports were presented. PriceWaterhouseCoopers is accused of having registered loans as much higher value and more secure than they actually were.

By the end of 2007 Landsbanki had loaned Eimskip, Icelandic Group, FL-Group and associated companies around ISK 200 billion. It is claimed that PriceWaterhouseCoopers auditors knew that the collateral behind those loans was generally either insecure or non-existent but decided, in collaboration with Landsbanki executives, to present the loans in quarterly and annual financial reports under false pretences.

If the independent auditors’ report had been accurate it is likely Landsbanki would have lost its operating licence at the end of 2007, it is claimed. In that event the collection of Icesave deposits in UK would have stopped and would never have begun in the Netherlands in spring 2008. The impact of the collapse would therefore have been smaller.

Resolution committee information officer, Páll Benediktsson, confirmed to reporters that the subpoena has been issued, but said little else. The case against PriceWaterhouseCoopers is set to hit the Reykjavík District Court on 21st June.

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