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Deloitte has asked a US judge to throw out demands that it compensate shareholders who lost money in the collapse of one of the country’s largest nuclear power projects, in a case that has exposed the inner workings of the Big Four audit firm.
Recently filed documents detail Deloitte’s work auditing the South Carolina utility Scana before the company abandoned construction of two nuclear reactors that had fallen far behind schedule and billions of dollars over budget.
The 2017 fiasco led to the cut-price sale of Scana to a rival utility, the bankruptcy of the construction group Westinghouse and jail time for Scana’s former chief executive, who pleaded guilty to misleading regulators.
A class-action lawsuit on behalf of Scana shareholders alleges Deloitte helped the company hide burgeoning problems at the VC Summer nuclear project by signing off on financial statements that indicated it would be completed on time.
In fact, an internal whistleblower at Scana had claimed as early as 2015 that Westinghouse was impossibly far behind, and Deloitte failed to follow other red flags, the lawsuit claims.
Citing internal documents, it says that although Deloitte had experts in power plant construction on staff, the firm did not use them to verify what its audit team was being told by Scana management and Westinghouse. Deloitte’s main construction expert billed just 1.5 hours of work to Scana’s 2016 audit, according to an internal log.
The shareholders say Deloitte’s audit team gave too much credence to Scana’s own internal investigation, which dismissed claims by the whistleblower, Carlette Walker, that management was withholding negative information from regulators.
One of Deloitte’s own construction experts, Heather Sprowls, conducted an internal review of the firm’s work, after the fact, and penned a six-page handwritten memo that concluded the whistleblower investigation had been flawed.
“Derogating its responsibility as an auditor, Deloitte rubber-stamped Scana’s sham investigation into Walker’s allegations, accepting its incredulous finding that Walker’s concerns were ‘unsubstantiated’ without obtaining sufficient corroborating documentation,” the suit claims.
A Deloitte spokesperson said it “stands behind its work and believes plaintiff’s assertions are without merit”. In its motion asking for summary judgment against the shareholders, which is now with Judge Jacquelyn Austin in South Carolina district court, the firm argued that Scana’s filings contained plenty of warnings that Westinghouse could fail to meet construction deadlines.
“Plaintiff cannot take its case to a jury by pretending Scana’s cautionary disclosures do not exist, it cannot prove scienter by ignoring the substantial audit work performed, and it cannot recover damages based on events that bear no causal connection to anything Deloitte did,” its lawyers wrote.
Scana shares slumped as the problems at VC Summer became apparent, and the company was sold in 2018 to Dominion Energy of Virginia at a price some 25 per cent below its peak.
In 2020 the Securities and Exchange Commission charged Scana with misleading investors over the status of the nuclear project. The company paid $138mn to settle the claims, without admitting or denying wrongdoing. Former Scana chief executive Kevin Marsh was sentenced to two years in prison for hiding negative information from industry regulators.
https://www.ft.com/content/89b10731-fcd0-4854-8bb5-1f4067f1bba2
