The Canadian arm of PwC has been named in seven separate lawsuits claiming as much as $2bn in damages for investors who lost almost everything in the largest fraud in history. PwC Canada was auditor to Fairfield Sentry, the feeder fund that placed $7.2bn of investors' money with Madoff, and which became the biggest single casualty.At the heart of the suit is the claim that:
As auditors, PwC would have been required to check that the treasury notes existed. However, Madoff was able to conceal any shortfall because he was not just the "execution agent" for Fairfield Sentry's investment strategy but also the custodian of the money. As such, PwC would have received assurances from Madoff that the treasury notes existed.
Investors argue that his dual role should have been a "red flag" that raised suspicions and persuaded the auditors to verify the claim with the US Treasury. Investors also say that Madoff's unusual habit of liquidating the entire Fairfield Sentry investment and converting it into US treasuries for a few days over every financial year-end should have been another "red flag". Since Madoff pleaded guilty to fraud, it has become clear the funds never existed.
This effort to get into PwC's deep pockets followed a similar case where KPMG is being sued for $3.3 billion in the Madoff case for its work on another feeder fund: Tremont Group. I believe BDO Siedman was the first to get sued for its work on a Madoff feeder fund.
My guess is that now that we have two auditors of the feeder funds being sued by Madoff victims that it's only a matter of time before we see more auditor lawsuits related to Madoff.