TBW originated and underwrote mortgage loans insured by the FHA under HUD’s Direct Endorsement Lender program. When borrowers default on such loans, the lender can submit claims to the United States to recoup losses. Such lenders must submitted audited financial reports annually.

Deloitte, TBW’s outside auditor from 2002 through 2008, failed to detect long-running fraud by TBW in the sale of phony and double-pledged mortgage loans. That meant TBW’s financial statements did not reflect its severe financial stress. TBW continued to originate such loans until it collapsed and declared bankruptcy in 2009.

The United States alleged that Deloitte’s audits knowingly deviated from applicable auditing standards and therefore failed to detect TBW’s fraudulent conduct and materially false and misleading financial statements.

The United States alleged that Deloitte’s audit failures extended to the specific financial arrangements through which TBW carried out its fraudulent conduct.  By failing to detect TBW’s misconduct, Deloitte’s audit reports allegedly enabled TBW to continue originating FHA-insured mortgage loans until TBW collapsed and declared bankruptcy in 2009.