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Deloitte has agreed to pay $34mn to investors who blamed the auditor for losses stemming from the collapse of one of US’s largest nuclear power projects, a rare legal settlement by a Big Four firm.
Former shareholders in the South Carolina utility Scana said Deloitte failed to spot red flags and allowed management to hide mounting problems with the construction of two nuclear reactors a decade ago.
Scana shares tumbled when it eventually abandoned work on the reactors in 2017, leading to its cut-price sale to a rival utility and jail time for its former chief executive, who pleaded guilty to misleading regulators. The fiasco also pushed construction company Westinghouse into bankruptcy.
Lawyers for Scana’s shareholders claimed Deloitte should pay a portion of losses estimated at $800mn, because the firm repeatedly signed off on financial statements in which the company indicated the project would be finished on time.
A judge will need to approve the settlement, which was filed in South Carolina federal court on Friday, but plaintiff lawyers called it an “excellent result” for shareholders. It comes on top of a $192.5mn settlement from Scana and its officers in 2020.
“The $34mn recovery from Deloitte is one of the largest securities class-action settlements against an auditing firm in the last decade,” the lawyers wrote.
“The settlement was also reached after extensive litigation, at a time when the parties were fully aware of the strengths and weaknesses of their respective positions, and was the culmination of extensive arm’s length negotiations overseen by a well-respected mediator.”
Deloitte on Friday said: “Deloitte stands behind the quality of its audit work and is participating in this settlement to avoid the ongoing cost and distraction of extended litigation.”
Investors face a high legal bar for implicating auditors in the securities frauds of their clients because audits are meant to provide only “reasonable assurance” that financial statements are free of error. In the largest recent settlement, PwC paid $65mn in 2015 over claims related to the collapse of the brokerage MF Global.
Years of litigation shined a harsh spotlight on Deloitte’s audit, particularly how the firm dismissed claims from a Scana whistleblower who said as early as 2015 that the reactors would not be completed in time to trigger vital government subsidies.
One of Deloitte’s own construction experts conducted an internal review of the firm’s work after the fact, and penned a six-page handwritten memo concluding it should have done more to investigate the whistleblower’s claims.
Deloitte has said it stands behind its work and argued in court that Scana’s financial statements contained plenty of warnings about the project’s risks. Its settlement does not indicate an acceptance of liability.