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Disclaimer :Reprinted from Westlaw with permission of Thomson Reuters/West. If you wish to check the currency of this case, you may do so using KeyCite on Westlaw by visiting http://www.westlaw.com. HGrant Thornton, LLP v. F.D.I.C. S.D.W.Va.,2007. United States District Court,S.D. West Virginia. Grant THORNTON, LLP, Plaintiff, v. FEDERAL DEPOSIT INSURANCE CORPORATION, Defendant; andFederal Deposit Insurance Corporation, Plaintiff, v. Grant Thornton, LLP, Defendant; andGary Ellis, Plaintiff, v. Grant Thornton, LLP, Defendant. Civil Action Nos. 1:00-0655, 1:03-2129, 1:04-0043. March 14, 2007. Background: Federal Deposit Insurance Corporation (FDIC), and officer of insolvent financial institution, brought accounting malpractice actions against institution's auditor. Holdings: Following bench trial, the District Court, David A. Faber, Chief Judge, held that: [1] Banks and Banking 52 [2] Negligence 272 [3] Accountants 11A [4] Accountants 11A [5] Accountants 11A [6] Accountants 11A [7] Negligence 272 Negligence 272 [8] Accountants 11A [9] Accountants [10] Negligence 272 [11] Accountants 11A [12] Accountants 11A [13] Damages 115 Damages 115 [14] Accountants 11A [15] Accountants 11A [16] Interest 219 [17] Accountants 11A *679 Andrew J. Morris, Mark W. Ryan, Mayer Brown, Washington, DC, Catherine L. Doyle, Stanley J. Parzen, Mayer Brown, Chicago, IL, John H. Tinney, John H. Tinney, Jr., Kimberley R. Fields, The Tinney Law Firm, Charleston, WV, for Plaintiff. Brad A. Harman, Clint R. Latham, David Mullin, John M. Brown, John G. Turner, III, Mullin Hoard & Brown, Amarillo, TX, Charles T. Miller, Stephen M. Horn, U.S. Attorney's Office, Charleston, WV, John A. Davidovich, John Wessling, Mary P. Davis, Federal Deposit Insurance Corporation, Washington, DC, for Defendant. FINDINGS OF FACT AND CONCLUSIONS OF LAW DAVID A. FABER, Chief Judge. INTRODUCTION A bench trial was held on May 17, 2004, through June 10, 2004. Closing arguments were held on August 20, 2004. Set forth herein are the court's findings of fact and conclusions of law pursuant to Fed.R.Civ.P. 52. Because this case was tried before the court as a bench trial, the court's findings are presumed to be based on admissible evidence. Fishing Fleet, Inc. v. Trident Ins. Co., Ltd., 598 F.2d 925, 929 (5th Cir.1979); see also Chicago Title Ins. Co. v. IMG Exeter Associates Ltd. P'ship, 985 F.2d 553, 1993 WL 27392 at *4 (4th Cir.1993) (unpublished); see also Harris v. Rivera, 454 U.S. 339, 346, 102 S.Ct. 460, 70 L.Ed.2d 530 (1981) (“In bench trials, judges routinely hear inadmissible evidence that they are presumed to ignore when making decisions.”). Accordingly, the court finds it unnecessary to rule on each separate objection raised by the parties. The court has considered those objections relating to the evidence supporting the findings contained herein and, to the extent such objections relate to the evidence which the court cites in support of its findings, such objections are hereby overruled. FINDINGS OF FACT I. Background 1. The First National Bank of Keystone (“Keystone” or the “Bank”) located in Keystone, McDowell County, West Virginia, was incorporated in 1904 under the National Banking Act. GT Ex. 22. Prior to 1992, Keystone was a small community bank servicing primarily McDowell County and the surrounding area. Keystone was a national banking association within the Federal Reserve System, the deposits of which were insured by the Federal Deposit Insurance Corporation (“FDIC”). Keystone's principal place of business was in West Virginia. Prior to his death in 1997, J. Knox McConnell, the Bank's president and its largest shareholder, controlled Keystone. FDIC Ex. 431 at 2-3. *680 2. From at least 1992 through October 1997, Keystone's board of directors consisted of two inside directors, J. Knox McConnell and Billie Cherry, and outside directors Michael Gibson, a local attorney; Andres Rago, a local doctor; Julian Budnick, a retired furniture salesman; and Louis Pais, a retired beer distributor. When McConnell died in October 1997, Terry Church replaced him on the board. At the same time, Billie Cherry became president of the Bank, and Melissa Quizenbeury, a long-time employee, became a director. Gibson, May 20, 2004, Tr. at 7, 10; FDIC Exs. 90, 124, 248 at 2; GT Exs. 208, 625. After McConnell's death, Church controlled every material aspect of the Bank's operations. Carney, May 19, 2004, Tr. at 69-71; Quay, June 4, 2004, Tr. at 13-14; FDIC Ex. 417 at 3. Church was also the executrix of McConnell's estate, giving her control of the largest single block of Keystone stock. FDIC Ex. 248 at 2. 3. In December 1998, Julian Budnick resigned from the board and was replaced by his son Victor Budnick, an attorney. Budnick, May 18, 2004, Tr. at 86-88; Gibson, May 20, 2004, Tr. at 10. In March 1999, two new directors were elected: Bernard Kaufman, a retired attorney and investor, and Daniel Halsey, a local car dealer. Most of the outside directors owned sizable blocks of Keystone stock, and outside director Gibson actually bought more stock during the last few months of the Bank's existence. Gibson, May 20, 2004, Tr. at 58; FDIC Ex. 248 at 2, FDIC Exs. 263, 880. 4. This civil action arises from the fraudulent operation and eventual collapse of Keystone. The fraud was conceived and perpetrated by senior bank management and continued for years until detected. In addition to McConnell, who died in October, 1997, before the Bank was closed, the principal perpetrators of the fraud, all Keystone insiders, were Terry Church, Michael Graham and Billie Cherry. FDIC Exs. 431, 432. Church, Graham and Cherry have all been convicted of numerous felonies, their convictions have been affirmed on appeal, and all three were sentenced to lengthy terms of incarceration.FN1 FDIC Exs. 430, 433, 434, 435, 558, 560, and 579. For several years the wrongdoers successfully concealed the fraud from the public, from the Bank's examiners, from the Bank's board of directors, and even from some of Keystone's own senior management. FN1. On December 29, 2006, Cherry died of a cerebral hemorrhage while in federal custody. 5. Central to the fraud was an investment strategy that involved securitization of high risk mortgage loans. Beginning in 1992, Keystone originated nineteen securitizations over a six-year period. GT Ex. 514. Keystone would acquire Federal Housing Authority (“FHA”) or high loan to value real estate mortgage loans from around the United States, pool a group of these loans, and sell interests in the pool through underwriters to sophisticated investors. GT Ex. 22. The pooled loans were serviced by third-party loan servicers; principal among these servicers were Advanta and Compu-Link. GT Ex. 22. Keystone retained residual interests (“residuals”) in each loan securitization. GT Ex. 22. The residuals were subordinated securities that would receive payments only after all expenses were paid and all investors in each securitization pool were paid. GT. Ex. 22. In short, Keystone stood to profit from a securitization only after everyone else was paid. The residuals were assigned a value that was carried on the books of the Bank as an asset. Over time, the residual evaluations came to represent a significant portion of the Bank's book value. GT Ex. 22. *681 6. From 1993 until 1998 when the last loan securitization was completed, the size and frequency of these transactions expanded from about $33 million to approximately $565 million for the last one in September 1998. FDIC Ex. 431 at 3. All told, Keystone acquired and securitized over 120,000 loans with a total value in excess of $2.6 billion. FDIC Ex. 431 at 3. Keystone appeared to be an exceptionally profitable bank, whose assets purportedly grew from $107 million in 1992 to over $1.1 billion in 1999. FDIC Ex. 431 at 3; GT Ex. 22. 7. In reality, the securitization program proved highly unprofitable. Owing to the risky nature of many of the underlying mortgage loans, the failure rate was excessive. As a result, the residual interests retained by the Bank proved highly speculative and, in actuality, they did not perform very well. Malami, May 26, 2004, Tr. at 77-134; Potter, May 26, 2004, Tr. at 159-60; Potter, May 27, 2004, Tr. at 34-35. Keystone's valuation of the residuals was greater than their market value. Quay, June 4, 2004, Tr. at 29; FDIC Ex. 286. McConnell, Church, and others concealed the failure of the securitizations by falsifying the Bank's books. FDIC Ex. 431. Bogus entries hid the true financial condition of the Bank from the Bank's directors, shareholders, depositors and regulators. FDIC Ex. 431. Among the bogus documents were false remittance reports prepared by Graham and given to examiners from the Office of the Comptroller of the Currency (“OCC”). At the same time, the wrongdoers embezzled large sums from the Bank, covering their theft with other false entries in the Bank's books. FDIC Ex. 431. 8. The embezzlement of funds and the falsification of Keystone's financial records were both integral parts of the fraudulent scheme. The scheme participants booked false credits to interest income to make it appear that Keystone was highly profitable and booked false debits to loans to fraudulently inflate assets and capital-which made this a very common (“a garden variety”) form of fraud. These fraudulent entries, and their reflection in the Bank's financial statements, enabled Keystone's corrupt management to continue to embezzle funds and conceal their earlier embezzlements. Carmichael, May 24, 2004, Tr. at 36-41; Carmichael, May 25, 2004, Tr. at 30-31; Goldman, June 9, 2004, Tr. at 83-84. 9. One of the boldest acts of fraud designed to conceal the Bank's true financial condition occurred when approximately $515 million in loans were sold by Keystone, but continued to be carried on the Bank's books as assets. FDIC Ex. 431; GT Ex. 22. Discovery of these fraudulent entries would have revealed at once the fraud and the Bank's insolvency, resulting in the Bank's immediate seizure and closure by federal regulators. Johnson, May 17, 2004, Tr. at 148; C. Wilson, May 17, 2004, Tr. at 240. II. Hiring of Grant Thornton 10. Keystone had a long history of conflict with federal bank examiners and regulators. GT Ex. 22. In May, 1998, the OCC sought civil money penalties against Keystone's management and board for repeatedly filing inaccurate call reports. Casey, June 1, 2004, Tr. at 105; Gibson, May 20, 2004, Tr. at 12; FDIC Ex. 64 at 5; FDIC Ex. 182 at 31; FDIC Ex. 183 at 48. Call reports are detailed statements of a bank's financial condition that must be filed with the FDIC at the end of each quarter. Carney, May 19, 2004, Tr. at 103; FDIC Exs. 106, 171, 270, 323. 11. In examinations from 1995 to 1998, the OCC repeatedly criticized Keystone's management and records. GT Exs. 22, 243; FDIC Exs. 182, 183. The OCC asked for additional civil monetary penalties*682 when it discovered over $100 million in errors in Keystone's accounting records. Carney, May 19, 2004, Tr. at 62-63; Goldman, June 9, 2004, Tr. at 111. In its 1998 examination report, the OCC stated that Keystone's management had demonstrated an unwillingness or inability to follow appropriate accounting guidelines and comply with applicable laws and regulations. FDIC Ex. 183 at 3; GT Ex. 22. In the same examination, the OCC stated that Keystone had not filed an accurate call report the last seven quarters, that the Bank was willfully violating brokered deposit restrictions, and that data was being manipulated to enhance Keystone's capital position. FDIC Ex. 183 at 22, 41, 48. At one point, the OCC, suspecting that McConnell and Church were involved in an illegal kickback scheme concerning appraisal fees, made a criminal referral. FDIC Ex. 180; Quay, June 4, 2004, Tr. at 17-20; GT Ex. 22. The OCC discovered that Graham had made an “input error” of $31 million while entering data on loan residual evaluations, and criticized numerous other actions of Bank management designed to enhance Keystone's capital position as reflected by the Bank's records. FDIC Ex. 183 at 48. Over time a hostile relationship developed between Keystone officials and the regulators. GT Ex. 22. Church and McConnell (prior to his death) were at the center of this conflict. GT Ex. 22. 12. By the Spring of 1998, conflict between Keystone and the regulators had reached a critical juncture. In May of 1998, the OCC required Keystone to enter into a Formal Agreement obligating Keystone to take specific steps to improve its regulatory posture and financial condition. FDIC Ex. 64; Gibson, May 20, 2004, Tr. at 12. This included retaining a nationally recognized independent accounting firm. Gibson, May 20, 2004, Tr. at 14; Buenger, June 2, 2004, Tr. at 179-81; FDIC Exs. 64, 228. Discussions followed between Bank officials and defendant Grant Thornton LLP (“Grant Thornton”) concerning the possible employment of Grant Thornton as the Bank's outside auditor. Grant Thornton knew that the Bank had significant accounting problems and was aware of the troubled relationship between the Bank and federal regulatory authorities. Buenger, June 2, 2004, Tr. at 179-81; Quay, June 3, 2004, Tr. at 15; FDIC Exs. 64, 228. 13. Between July 17 and August 21, 1998, appropriate officials at Grant Thornton approved acceptance of the Bank as a client. Quay, June 3, 2004, Tr. at 24. While the approval process was taking place, Stanley Quay, Grant Thornton's partner who was to be in charge of the audit, drafted a proposal covering the services he expected Grant Thornton to perform for the Bank. Quay, June 3, 2004, Tr. at 24-25; FDIC Ex. 75. Under this proposal, there were two principal levels of service Grant Thornton was to perform for the Bank: (1) An audit of the Bank's consolidated financial statements as of December 31, 1998; and (2) Completion of certain “agreed-upon-procedures” relative to elements of the Bank's financial statements beginning quarterly as of June 30, 1998. Quay, June 3, 2004, Tr. at 25-26. 14. On or about July 27, 1998, the OCC indicated it had no objection to the hiring of Grant Thornton by the Bank. Gibson, May 20, 2004, Tr. at 67-68; FDIC Ex. 79. Grant Thornton began its work at the Bank on or about August 12, 1998. Carmichael, May 24, 2004, Tr. at 110-11; Casey, June 1, 2004, Tr. at 99; Gibson, May 20, 2004, Tr. at 69-70; FDIC Ex. 91. 15. On September 10, 1998, Quay prepared and signed an engagement letter by which Grant Thornton agreed to perform an audit of Keystone's December 31, 1998, financial statements in accordance with Generally Accepted Auditing Standards *683 (“GAAS”). Quay, June 3, 2004, Tr. at 28; FDIC Ex. 98. Billie Cherry signed the letter on behalf of Keystone on February 5, 1999. Quay, June 3, 2004, Tr. at 28-29; FDIC Ex. 98. 16. Stan Quay was the lead Grant Thornton partner on the engagement. FDIC Ex. 75. Susan Buenger, a junior manager, performed substantial work on the engagement. FDIC Ex. 75. Quay reviewed the Formal Agreement, and was familiar with its terms. Quay, June 3, 2004, Tr. at 18-19. III. Grant Thornton's Standard of Care 17. The American Institute of Certified Public Accountants (AICPA) is a national professional organization for CPAs. During the time period involved, the AICPA set the professional standards that applied to the work of CPAs. GAAS, promulgated by the AICPA, are the standards applicable to auditing functions. GAAS is generally accepted as the minimum standard of professional conduct in performing an audit. Generally Accepted Accounting Principles (“GAAP”) “encompass the convention, rules, and procedures necessary to define accepted accounting practice at a particular time.” Carmichael, May 24, 2004, Tr. at 11-14. 18. Due professional care under GAAS requires the auditor to exercise professional skepticism. Carmichael, May 24, 2004, Tr. at 23. Professional skepticism is an attitude that includes a questioning mind and a critical assessment of audit evidence. Carmichael, May 24, 2004, Tr. at 27-29; Buenger, June 2, 2004, Tr. at 62; Goldman, June 9, 2004, Tr. at 19; GT Ex. 266 (AU 230.07). The auditor has the responsibility to plan and perform the audit to obtain reasonable assurance that the financial statements are free of material misstatement, whether caused by error or fraud. Carmichael, May 24, 2004, Tr. at 32-34; Buenger, June 2, 2004, Tr. at 62-63; Quay, June 3, 2004, Tr. at 151; FDIC Exs. 438, 473 (AU 110.02). “When considering the auditor's responsibility to obtain reasonable assurance that the financial statements are free from material misstatement, there is no important distinction between errors and fraud.” GT Ex. 268 (AU 312.08). 19. An auditor should have a “show me” attitude, and not accept unsubstantiated assertions by management. Buenger, June 2, 2004, Tr. at 63; Carmichael, May 24, 2004, Tr. at 27-29; FDIC Ex. 728. When applying procedures to the client's records, schedules and supporting data, the auditor should be on guard against accepting documents at face value. Buenger, June 2, 2004, Tr. at 63-64; Goldman, June 9, 2004, Tr. at 38-39; Carmichael, May 24, 2004, Tr. at 25. 20. If there is a high risk of fraud, the auditor ought to employ a heightened professional skepticism. Carmichael, May 24, 2004, Tr. at 29-31. Grant Thornton had many reasons to employ a heightened professional skepticism in its audit of Keystone's financial statements. Grant Thornton rated the Keystone audit maximum risk. Buenger, June 2, 2004, at Tr. 64; Carmichael, May 24, 2004, Tr. at 29; FDIC Ex. 174. It was the highest risk audit on which Buenger and Quay had ever worked. Buenger, June 2, 2004, Tr. at 64; Quay, June 3, 2004, Tr. at 189. Quay and Buenger testified that their “fraud antenna” were up as high as they could get. Buenger, June 2, 2004, Tr. at 64; Quay, June 3, 2004, Tr. at 189. IV. Grant Thornton's Failure to Check the Remittances From Servicers 21. Due professional care is to be exercised in the performance of the audit and the preparation of the report. GT Ex. 262 (AU 150.02); GT Ex. 266 (AU 230.01). 22. The auditor has the responsibility to plan and perform the audit to obtain reasonable assurance about whether the *684 financial statements are free of material misstatement, whether caused by error or fraud. Carmichael, May 24, 2004, Tr. at 32-36; FDIC Ex. 473 (AU 110.02). 23. The auditor should specifically assess the risk of material misstatement due to fraud and should consider that assessment in designing the audit procedures to be performed. Carmichael, May 24, 2004, Tr. at 34-36; FDIC Ex. 695 (AU 316.12). 24. As already noted, the risk of material misstatement in Keystone's financial statements due to error or fraud was high, and Grant Thornton had already reached that conclusion before its year-end 1998 audit of Keystone commenced. Carmichael, May 24, 2004, Tr. at 94. 25. Buenger was responsible for testing Keystone's interest income during the year-end, 1998 audit. Keystone's management was reporting $98.8 million in interest income from loans owned by Keystone during 1998. Buenger, June 2, 2004, Tr. at 78. Over $65 million of the interest income was fraudulent and nonexistent. Carmichael, May 24, 2004, Tr. at 41. 26. Buenger performed the interest income testing in March, 1999. Buenger did not perform a test of details, which would have entailed looking for underlying support for the recorded item. Carmichael, May 24, 2004, Tr. at 49. Buenger did not examine remittance records of interest income. It would only have taken a short time to check the remittance records to verify the interest income. By tracking the ten remittances showing income for 1998 from loan servicer Compu-Link into Keystone's bank statement, Buenger could have verified 80-90% of the interest income. Buenger, June 2, 2004, Tr. at 71-93; Carmichael, May 24, 2004, Tr. at 100-01; Carmichael, May 25, 2004, Tr. at 23-25, 154-57; G. Ellis, May 22, 2004, Tr. at 78-80, 86, 94-95; Johnson, May 17, 2004, Tr. at 184-87; Quay, June 3, 2004, Tr. at 154-56; Terry Depo., November 16, 2002, pp. 14-15, 17-25, 31-34, 36-45 (FDIC Ex. 902). 27. GAAS requires an auditor to obtain the best evidence available within the time constraints and money constraints applicable to the engagement. Buenger, June 2, 2004, Tr. at 90. In this case, it would have been less time consuming and costly to perform a test of details rather than the analytical test that Buenger performed because the bulk of the interest income came from one servicer. Grant Thornton would only need to look at twelve remittances to very effectively substantiate most of the interest income. Carmichael, May 24, 2004, Tr. at 100-01. 28. Instead, the primary procedure that Buenger relied on to test interest income was an ineffective “analytical test.” This test compared recorded interest income for the annual period to the average balance of loans outstanding during the same period, as reflected in the quarterly average balances reported in Keystone's call reports, to calculate an annual yield. Carmichael, May 24, 2004, Tr. at 84-85, 97-98. Buenger then considered the reasonableness of this calculated expectation of the yield based on her understanding of the industry yield on the same types of loans. Buenger, June 1, 2004, Tr. at 180-81; Carmichael, May 24, 2004, Tr. at 84-85, 97-98; FDIC Ex. 164. 29. The analytical test that Buenger did to test interest income only considered information provided by management. Carmichael, May 24, 2004, Tr. at 90. The data that Buenger obtained in her analytical testing was not independent of the entity, was not from a person independent of those responsible for the amount being audited, was not developed under a reliable system with adequate controls, and Grant Thornton had determined that the prior auditors were incompetent. Carmichael, May 24, 2004, Tr. at 98-100. Buenger*685 used only three items of information in her analytical test. Goldman, June 9, 2004, Tr. at 29-30; Quay, June 4, 2004, Tr. at 10-13. The first was the average balance of owned loans reported on Keystone's call reports. Goldman, June 9, 2004, Tr. at 30. Buenger and Quay knew that the OCC had imposed civil money penalties on Keystone for filing inaccurate call reports; in fact, the OCC said that Keystone had not filed an accurate call report in the last seven quarters. Quay, June 4, 2004, Tr. at 10-11. Buenger decided not to use the call report information for March 31, 1998 because the OCC had required the call report to be restated, but she then proceeded to use the other 1998 call reports despite knowing that the OCC had determined those call reports were also inaccurate. Buenger, June 2, 2004, Tr. at 106-09. Thus, Buenger knew the call report information she used was of questionable reliability. Carmichael, May 24, 2004, Tr. at 89-90, 98-99; Goldman, June 9, 2004, Tr. at 32-33; Quay, June 3, 2004, Tr. at 151. 30. The second piece of information Buenger used in her analytical test was a chart of Keystone's month end loan inventories for 1998 that was provided to her by Graham. According to Buenger's memorandum to the file on Keystone's loan purchasing, Keystone purchased loans throughout the year, and then sold them into securitizations. Buenger, June 2, 2004, Tr. at 96-98; FDIC Ex. 181. Buenger believed Keystone was funding these purchases with brokered deposits. Buenger, June 2, 2004, Tr. at 95. Keystone's loan inventory should have dropped substantially at the time of the securitizations because the loans were sold into the securitizations. Buenger, June 2, 2004, Tr. at 97-98. Keystone had two securitizations in 1998-one in May for $275 million and one in September for $565 million. But according to the Graham chart, the Keystone loan inventory only dropped slightly in those months-with a $47 million drop in May, 1998 and a $32 million drop in September, 1998. FDIC Ex. 164. Finally, there were large discrepancies between the total loan inventories on Graham's chart and the total loan inventories reflected in Grant Thornton's workpapers on its agreed upon procedures. FDIC Ex. 164; Buenger, June 2, 2004, Tr. at 103-04. For example, as of June 30, 1998, Graham's chart reflected Keystone owned $566 million in loans, but Grant Thornton's reconciliation of loans as of the same date reflected an inventory of only $402 million. FDIC Ex. 164; Buenger, June 2, 2004, Tr. at 103-04. Buenger realized the numbers in Graham's chart were not reasonable, and didn't tie to any of the other numbers of which she was aware. Buenger, June 2, 2004, Tr. at 95-104, 130-31; Quay, June 4, 2004, Tr. at 8-10; FDIC Exs. 164, 915. Nevertheless, neither Buenger nor Quay asked Graham to explain why the loan balances that he provided Buenger made no sense. Buenger, June 2, 2004, Tr. at 103-04; Quay, June 4, 2004, Tr. at 9-10. Even though she had determined that Graham's chart made “no sense,” Buenger continued to use the January through March 1998 loan inventories in Graham's chart in her analytical test of income. Buenger, June 2, 2004, Tr. at 104-06, 109-10; Goldman, June 9, 2004, Tr. at 26-27, 150; Quay, June 3, 2004, Tr. at 150-51. Buenger violated GAAS by failing to investigate how Graham provided her bogus loan inventories that made “no sense,” by failing to investigate how Graham had made the $31 million “input error” on the residual valuation, and by using information that she knew contained material errors in her analytical test. Goldman, June 9, 2004, Tr. at 19-29, 31-32. 31. The third piece of information used by Buenger in her analytical test was a “remittance report,” reflecting $10 million in income from Compu-Link during the *686 month of December, 1998. FDIC Ex. 165. One of Graham's subordinates, Debbie Watkins, provided the “remittance report” to Buenger with a letter from Forest Krumm of Compu-Link. Buenger, June 1, 2004, Tr. at 187; Buenger, June 2, 2004, Tr. at 64-65. The Krumm letter states that “enclosed is a trial balance.” FDIC Ex. 165. The letter does not reference a “remittance report” as being enclosed. FDIC Ex. 165. The “remittance report” contains no identifying markings to indicate that it is a true Compu-Link record. FDIC Ex. 165. Under GAAS, Buenger should have investigated these anomalies, and could not rely on the “remittance report” until she cleared them up. Buenger violated GAAS by using data on the remittance report in her analytical test, and by failing to investigate the anomalies in the information she was provided. Buenger, June 2, 2004, Tr. at 64-65, 72-73; Carmichael, May 24, 2004, Tr. at 102-05; Carmichael, May 25, 2004, Tr. at 158-59, 169-70; FDIC Ex. 165 32. Detailed testing is better and provides stronger evidence than analytical testing. Goldman, June 9, 2004, Tr. at 46-47. At trial, Buenger professed not to know that there was a difference between an analytical test and a test of details. Buenger, June 2, 2004, Tr. at 71. An auditor with Buenger's level of training and experience should know the difference between an analytical test and a test of details. Goldman, June 9, 2004, Tr. at 46. 33. After the OCC reported the $500 million of missing loans in August, 1999, Grant Thornton's first step was to look for check and wire remittances showing the interest income, but they could not find any evidence to support $500 million in loans. Carmichael, May 24, 2004, Tr. at 85-86; Quay, June 3, 2004, Tr. at 154-56. 34. In August, 1999, Buenger and Quay asked Graham and Church to provide proof of the income from the loans, and they came back and said they couldn't find it. Quay, June 3, 2004, Tr. at 154-56. Graham and Church had every reason to produce whatever proof they could to support the income from loans. If Buenger and Quay had asked for the same proof in March, 1999, the result would likely have been the same: Church and Graham would not have been able to provide proof of the income. Buenger, June 2, 2004, Tr. at 79-90; Carmichael, May 24, 2004, Tr. at 101. 35. When Quay tested the more than $11 million in income from the residuals during the year-end, 1998 audit, he performed detailed testing procedures by actually examining the remittances, the checks, and wires from the servicers. Quay decided that the best way to test the residual income was to trace the actual remittances into the cash accounts. Buenger, June 2, 2004, Tr. at 78-79; Goldman, June 9, 2004, Tr. at 47-48; Quay, June 3, 2004, Tr. at 152-54; Carmichael, May 24, 2004, Tr. at 96; FDIC Ex. 188. The fact that Quay used detailed testing procedures to test the residual income is further evidence that Buenger should have done the same when she tested the interest income, especially given the fact that the amount of interest income Keystone was reporting was $98 million. 36. Under GAAS, AU 329.16 states the following concerning the reliability of data used in analytical procedures: The auditor should assess the reliability of the data by considering the source of the data and the conditions under which it was gathered, as well as other knowledge the auditor may have about the data. The following factors influence the auditor's consideration of the reliability of data for purposes of achieving audit objectives: Whether the data was obtained from independent sources outside the entity or from sources within the entity. *687 Whether sources within the entity were independent of those who are responsible for the amount being audited. Whether the system was developed under a reliable system with adequate controls. Whether the data was subjected to audit testing in the current or prior year. Whether the expectations were developed using data from a variety of sources. FDIC Ex. 715. 37. In Grant Thornton's audit of Keystone, potential misstatements in interest income would be apparent in the remittance records-as they were in August, 1999. Detailed evidence was readily available and was not voluminous. Carmichael, May 24, 2004, Tr. at 91-92; Johnson, May 17, 2004, Tr. at 184-87; FDIC Ex. 548. 38. Quay and Buenger had rated the Keystone audit a “C” or “comprehensive” audit. Carmichael, May 24, 2004, Tr. at 92-94, 96-97; FDIC Ex. 436. Although Grant Thornton's audit manual states that a “C” rated audit generally concentrates on tests of details for income statement accounts, Quay and Buenger did not use tests of details for a majority of the accounts, and instead only used tests of details for two of the accounts. Goldman, June 9, 2004, Tr. at 51-52. 39. In March, 1999, given the high risk of material misstatement in Keystone's financial statements, and the fact that Keystone's $98 million in interest income was more than 90% of Keystone's reported income, Buenger should have tested Keystone's interest income for 1998 by reviewing the remittance records of interest income for 1998. Her failure to do so was a violation of GAAS. Carmichael, May 24, 2004, Tr. at 30, 84-85, 94-96. 40. If Buenger had followed GAAS by testing Keystone's interest income for 1998 by reviewing the remittance records of interest income for 1998, it is more likely than not she would have discovered the loan inventory fraud in March, 1999, reported it to Keystone's board, Keystone's president Owen Carney, and the OCC, and Keystone would have been closed by March 30, 1999. Budnick, May 18, 2004, Tr. at 122; Buenger, June 2, 2004, Tr. at 79-80; Carney, May 19, 2004, Tr. at 101; Carmichael, May 24, 2004, Tr. at 31, 41-42; Carmichael, May 25, 2004, Tr. at 30-31; Gibson, May 20, 2004, Tr. at 34-37; Johnson, May 17, 2004, Tr. at 138-44, 148, 184-87; Potter, May 27, 2004, Tr. at 13; Quay, June 3, 2004, Tr. at 167-68; C. Wilson, May 17, 2004, Tr. at 240; FDIC Exs. 408, 548. V. Grant Thornton's Failure to Properly Prepare for the Confirmation Process 41. Keystone's December 31, 1998 financial statements represented Keystone owned loans held for sale and loans receivable of approximately $579 million. FDIC Ex. 291 at 4. Approximately $548 million of the $579 million was ostensibly located at large loan servicing organizations. The loans serviced by Compu-Link and Advanta were recorded at $469.7 million, but this amount was fraudulently overstated by $431.8 million. Of this amount, $236 million in loans being serviced by Advanta were recorded as assets on Keystone's books, when in fact the loans were owned by United National Bank (“United”). The $236 million were loans that United was to have sold to Keystone for inclusion in the December 1998 securitization that Keystone abruptly cancelled. Carmichael, May 24, 2004, Tr. at 41; Hale Depo., August 27, 2002, 51-55, 138-39, 155-59 (FDIC Ex. 889); J. Wilson, May 21, 2004, Tr. at 23-27. 42. The confirmation process was primary and critical to the Keystone audit. *688 Buenger, June 2, 2004, Tr. at 131-32; Carmichael, May 24, 2004, Tr. at 46-47. Buenger was tasked with doing the confirmations. Buenger, June 2, 2004, Tr. at 6-23. 43. Professional skepticism is important in performing confirmation procedures, and evaluating the results of the confirmation procedures. Buenger, June 2, 2004, Tr. at 132; Carmichael, May 24, 2004, Tr. at 48; FDIC Exs. 439, 483 (AU 330.15). 44. Buenger had never worked on an audit of a bank involved in the securitization business before Keystone; she had no experience regarding the securitization business. Buenger, June 2, 2004, Tr. at 133-34. 45. The auditor's understanding of the client's arrangements and transactions with third parties is key to determining the information to be confirmed. The auditor should obtain an understanding of the substance of such arrangements and transactions to determine the appropriate information to include in the confirmation request. Buenger, June 2, 2004, Tr. at 134-35; Carmichael, May 24, 2004, Tr. at 54-55; FDIC Ex. 439 (AU 330.25); FDIC Ex. 483 (AU 330.15). 46. An understanding of the substance of the client's arrangements and transactions with third parties is an important factor in determining the information to be confirmed. Buenger, June 2, 2004, Tr. at 135; FDIC Ex. 436 at 133. 47. Buenger violated GAAS, including AU 330.25, by failing to obtain an adequate understanding of Keystone's arrangements and transactions with United, Compu-Link and Advanta. Carmichael, May 24, 2004, Tr. at 47-48, 52-56; Carmichael, May 25, 2004, Tr. at 18-21. Indeed, Buenger testified that she had no idea Keystone had a relationship with United. Buenger, June 2, 2004, Tr. at 135. Buenger did not investigate the details of that relationship, nor did she review or ask to review the written agreements between United and Keystone. Buenger knew little or nothing of the details concerning the Bank's relationship with United. Buenger, June 2, 2004, Tr. at 135-40. VI. Grant Thornton Failed to Confirm $85 Million in Loans that Were Allegedly in Transit 48. In order to conduct the audit in accordance with GAAS, Grant Thornton was required to confirm Keystone's loans in the manner prescribed by GAAS. Confirmation is the process of obtaining and evaluating a direct communication from a third party in response to a request for financial information about a particular item affecting financial statement assertions. Goldman, June 9, 2004, Tr. at 52-53. The confirmation response must come to the auditor directly from the third party, and must be in response to the auditor's confirmation request. Goldman, June 9, 2004, Tr. at 53-54. 49. According to Keystone's books, as of December 31, 1998, and the lead sheet of supposed Keystone-owned loans that Buenger was trying to confirm, the Bank owned $85 million in loans that were being serviced by Compu-Link, but were transferred to Advanta for servicing effective January 15, 1999. These loans were in fact non-existent. Neither Advanta nor Compu-Link ever confirmed to Buenger that the $85 million in loans existed, that the loans were owned by Keystone, or that servicing of the loans was transferred from Compu-Link to Advanta. Buenger did nothing to investigate this discrepancy, but improperly relied upon the dubious remittance statement that was given to her with the Forrest Krumm letter, discussed above. Buenger, June 2, 2004, Tr. at 66-67, 141-44; Quay, June 3, 2004, Tr. at 127-32; FDIC Ex. 500. Buenger failed to confirm the $85 million in loans in accordance*689 with GAAS. Goldman, June 9, 2004, Tr. at 52-57. VII. Grant Thornton's Failure with Respect To the Advanta Confirmation 50. The first confirmation response from Advanta was received by Grant Thornton on or about January 24, 1999, and went into a folder in the confirmation drawer in Grant Thornton's Cincinnati office. That confirmation showed only $6 million in loans owned by Keystone were being serviced by Advanta, rather than the $242 million in loans Keystone was reporting. Burke Depo., December 13, 2002, 16-21, 34-36, 129-30 (FDIC Ex. 898); Gunter Depo., December 20, 2002, 260-64 (FDIC Ex. 913); Carmichael, May 24, 2004, Tr. at 58-61; French Depo., November 19, 2002, 85-86 (FDIC Ex. 907); Ramirez Depo., September 26, 2002, 165-71, 197-98 (FDIC Ex. 896); FDIC Exs. 175, 176, 177, 255, 500. 51. Buenger did not know she had the first January confirmation response in the confirmation drawer, and on March 16, 1999, she asked Advanta to send another confirmation. Carmichael, May 24, 2004, Tr. at 61-62; FDIC Exs. 255, 500. On March 17, 1999, Buenger received another confirmation response from Advanta, which again showed only $6 million in loans owned by Keystone being serviced by Advanta. Burke Depo., December 13, 2002, 20-25, 32-36, 129-40 (FDIC Ex. 899); Gunter Depo., December 20, 2002, 260-64 (FDIC Ex. 913); Carmichael, May 24, 2004, Tr. at 61-62; FDIC Exs. 169, 176, 177, 257, 500. 52. Both Advanta confirmation responses identified Keystone as Investor 405. FDIC Exs. 176, 177, 500. Buenger never made any inquiry about what the investor numbers meant. She was not aware of the significance of the investor numbers. Buenger, June 2, 2004, Tr. at 66. 53. The “investor” is the owner. Buenger, June 2, 2004, Tr. at 152; Carmichael, May 24, 2004, Tr. at 63; Johnson, May 17, 2004, Tr. at 180. The number following “investor” identifies the owner of the loans. Investor 405 was Keystone and Investor 406 was United. Ramirez Depo., September 26, 2002, 141-42 (FDIC Ex. 896). 54. The independent auditor should be thorough in his or her search for evidential matter and unbiased in its evaluation. FDIC Ex. 480 (AU 326.25). A thorough and skeptical auditor would have determined what the investor numbers meant. Carmichael, May 25, 2004, Tr. at 65-66. 55. There was a $236 million discrepancy between the amount of Keystone-owned loans Advanta confirmed it was servicing in its two confirmation responses and what Keystone's books said. Carmichael, May 24, 2004, Tr. at 61; French Depo., November 19, 2002, 87-92 (FDIC Ex. 907); FDIC Exs. 176, 177, 235, 379, 500. 56. Buenger reviewed the second Advanta confirmation response on or about March 17, 1999. Buenger, June 2, 2004, Tr. at 155; FDIC Exs. 169, 176, 177, 500. Buenger did not notify Keystone's management, the OCC, or even Quay of the $236 million discrepancy. Buenger testified it kind of got put on the “backburner.” Buenger, June 2, 2004, Tr. at 155-57; Goldman, June 9, 2004, Tr. at 58; Carmichael, May 24, 2004, Tr. at 61-62. 57. Buenger can't tell what she was doing during the 91 hours she billed to Keystone during the last two weeks of March, 1999 that was more important than resolving the $236 million discrepancy issue with Advanta. Buenger, June 2, 2004, Tr. at 156-57; FDIC Ex. 210. 58. Buenger's failure to pursue the $236 million discrepancy was a violation of GAAS. If Buenger had followed GAAS and *690 promptly investigated the $236 million discrepancy, she would have discovered the fraud, which would have led to the closure of the Bank. Budnick, May 18, 2004, Tr. at 122, 138-39, 145-46; Carmichael, May 24, 2004, Tr. at 30-31, 41-42, 66-69; Carmichael, May 25, 2004, Tr. at 30-31; Gibson, May 20, 2004, Tr. at 35-37, 59; Johnson, May 17, 2004, Tr. at 148; Kaufman, May 18, 2004, Tr. at 205-07; C. Wilson, May 17, 2004, Tr. at 240. Buenger's evaluation and investigation of the Advanta confirmation response demonstrated a lack of professional skepticism and due care. Her actions were an extreme departure from GAAS. Carmichael, May 24, 2004, Tr. at 68-69. 59. Quay saw and initialed the Advanta confirmation response on March 23, 1999. Quay, June 3, 2004, Tr. at 133-34; FDIC Exs. 169, 176, 177, 500. 60. On April 7, 1999, Buenger called Patricia Ramirez, the Investor Reporting Manager for Advanta, and talked with her for three minutes. The word “United” was not used during the Buenger-Ramirez conversation. Buenger, June 2, 2004, Tr. at 67; Gunter Depo., December 20, 2002, 269-74 (FDIC Ex. 913); Ramirez Depo., September 26, 2002, 182-83 (FDIC Ex. 896); FDIC Ex. 282. 61. On April 7, 1999, one minute after the phone call between Buenger and Ramirez concluded, Ramirez sent an e-mail to Buenger reflecting that United, Investor No. 406, owned $236 million in loans being serviced by Advanta. The e-mail does not reflect that the $236 million in loans are owned by Keystone. Gunter Depo., December 20, 2002, 269-74, 294-95 (FDIC Ex. 913); Carmichael, May 24, 2004, Tr. at 70; FDIC Exs. 169, 500. There is nothing in Keystone's records reflecting that Keystone owned loans under Investor No. 406, or under the name United National Bank, and there is nothing in the e-mail reflecting the $236 million in loans are owned by Keystone. Goldman, June 9, 2004, Tr. at 59-61. 62. All of the documentary information provided by Advanta to Grant Thornton was true and accurate. Buenger, June 2, 2004, Tr. at 162; Carmichael, May 25, 2004, Tr. at 144-45; Goldman, June 9, 2004, Tr. at 75; Johnson, May 17, 2004, Tr. at 179-81; C. Wilson, May 18, 2004, Tr. at 62-63. That information showed that United, not Keystone, owned the $236 million in loans, and the inevitable conclusion from that is that Keystone's financial statements were materially misstated as a result of fraud. Carmichael, May 24, 2004, Tr. at 72-73; Johnson, May 17, 2004, Tr. at 121-26; FDIC Exs. 169, 178, 379, 500. 63. Buenger violated GAAS by failing to carefully evaluate and investigate the Advanta confirmation responses-especially the e-mail from Ramirez. If Buenger had followed GAAS, she would have found the fraud on April 7, 1999, and the Bank would have been closed in April, 1999. Budnick, May 18, 2004, Tr. at 122; Carney, May 19, 2004, Tr. at 101; Carmichael, May 24, 2004, Tr. at 30-31, 79; Carmichael, May 25, 2004, Tr. at 30-31; Gibson, May 20, 2004, Tr. at 34-37; Johnson, May 17, 2004, Tr. at 148; C. Wilson, May 17, 2004, Tr. at 240. 64. To comply with GAAS's requirements of professional skepticism, Buenger should have called Ramirez back after receipt of the e-mail to determine why the e-mail reflected that the loans were owned by United and requested that Ramirez confirm in writing that the $236 million in loans were owned by Keystone. Carmichael, May 24, 2004, Tr. at 70-71, 75-76; Carmichael, May 25, 2004, Tr. at 21-22; Quay, June 3, 2004, Tr. at 135-39. Buenger failed to take either step; in fact, she never spoke with Ramirez again after receipt of the e-mail. Buenger, June 2, 2004, *691 Tr. at 66-69; Goldman, June 9, 2004, Tr. at 62. 65. In any event, the court does not believe Buenger's testimony about the telephone call with Ramirez for the following reasons. First and most importantly, the physical evidence, i.e., the email, contradicts Buenger's account of the phone call. According to Buenger, Ramirez told her “[t]hese belonged to Keystone at 12/31/98.”Buenger, June 2, 2004, Tr. at 28. However, one minute later, Ramirez sent Buenger an email which stated: “Below is the information requested from investor 406 as of 12/31/98. Investor number 406, investor name United National Bank, number of loans, 6,283, month end balances $236,221,923.07.” FDIC Exs. 754, 777. Ramirez's email is completely at odds with the statements Buenger attributes to her. For this reason alone, Buenger's testimony on this point is not credible. 66. Second, Joey Johnson, an OCC examiner, testified that, on August 25, 1999, he and other OCC examiners met with Grant Thornton to apprise them of the OCC's discovery of major discrepancies in the loan balances serviced by Compu-Link and Advanta. Johnson, May 17, 2004, Tr. at 112; FDIC Ex. 379. At that meeting, Stan Quay told the OCC they had confirmed those balances for the year ended 1998 and they all reconciled. Johnson, May 17, 2004, Tr. at 112; FDIC Ex. 379. Thereafter, Grant Thornton retrieved copies of the confirmations and the confirmation requests from their Cincinnati office. Johnson, May 17, 2004, Tr. at 112; FDIC Exs. 379, 754, 755. According to Johnson, the examiners questioned Buenger about why she added the $236 million owned by United to the $6 million owned by Keystone. Johnson, May 17, 2004, Tr. at 125; FDIC Ex. 379. Buenger stated that code 406 loans were under a “bad name” and should have been included in the confirmed loans. Johnson, May 17, 2004, Tr. at 126; FDIC Ex. 379. Buenger did not tell the OCC that Ramirez had told her that the United loans were Keystone loans. Johnson, May 17, 2004, Tr. at 126. Nor did she offer FDIC Exhibit 281, her handwritten note of what Ramirez purportedly told her, to the OCC. Indeed, Grant Thornton never offered Exhibit 281 to the OCC while the Bank was still open. Johnson, May 17, 2004, Tr. at 127-28. The court found Johnson to be completely credible. Furthermore, the failure of Grant Thornton to produce Exhibit 281 to the OCC undermines Buenger's credibility regarding what Ramirez supposedly told her. 67. Third, during her testimony, Ramirez was clear that she was absolutely certain regarding ownership of the loans under investor codes 405 and 406. Putting aside the purportedly speculative testimony, Ramirez testified that she had never been confused regarding the ownership of the loans. Ramirez Depo., September 26, 2002, 143 (FDIC Ex. 896). The court found Ramirez to be a totally credible witness. Indeed, her credibility was strengthened by her candor in explaining that she didn't have a specific recollection of her conversation with Buenger. 68. Fourth, as to certain points, Buenger's testimony regarding scrutiny of her confirmation process during the last week of the Bank's existence and what she did was contradicted by Michael Gibson and Gary Ellis, both of whom the court found to be completely credible. 69. Finally, the demeanor of Buenger on the witness stand, when taken together with her interests in the case, leads the court to believe she was not entirely truthful. 70. During the trial, Grant Thornton filed a motion to exclude the speculative testimony of Patricia Ramirez. By Order entered September 29, 2005, that motion *692 was denied. The court's findings regarding the phone call between Buenger and Ramirez do not depend on the purportedly speculative testimony. However, for the following reasons, the court denied the motion to exclude it. 71. Ramirez testified via video deposition. The disputed portion of her testimony concerns a conversation she had with Susan Buenger on April 7, 1999. Buenger testified that Ramirez told her “[the United loans] belonged to Keystone at 12/31/98.” Buenger, June 2, 2004, Tr. at 28. Ramirez testified that, although she has no specific recollection of the conversation with Buenger, she never would have made the remarks Buenger has attributed to her. 72. At the outset, the court notes that much of the deposition testimony that Grant Thornton argues is speculative is not, in fact, speculative. See e.g., Ramirez Depo., September 26, 2002, 186 (FDIC Ex. 896) (Q: Is there any possibility that you told Susan Buenger that the United loans were actually Keystone loans? A: No. Q: How do you know? A: Because I know who owned the loans. 405 did not belong to 406.). To borrow the FDIC's analogy, someone might ask me whether I have ever introduced myself as Abraham Lincoln and, although I cannot recall the details of every conversation I have ever had, I could answer that question under oath in the negative without speculating. 73. As to the speculative testimony, Federal Rule of Evidence 406 provides: Evidence of the habit of a person or of the routine practice of an organization, whether corroborated or not and regardless of the presence of eyewitnesses, is relevant to prove that the conduct of the person or organization on a particular occasion was in conformity with the habit or routine practice. 74. According to the Fourth Circuit, in determining whether examples of specific conduct of a party are numerous enough and sufficiently regular to be admissible as evidence of a pattern of conduct or habit, the key criteria are adequacy of sampling and uniformity of response or ratio of reactions to situations. Wilson v. Volkswagen of America, Inc., 561 F.2d 494, 511 (4th Cir.1977). 75. The evidence in this case showed that Advanta was in the business of servicing loans. Investor reporting and responding to confirmation requests were so commonplace that Advanta had an entire department dedicated to those tasks, and Patricia Ramirez was the manager of that department. At the time period in question, Daniel Burke worked in the investor reporting department at Advanta and had primary responsibility for Keystone's loans. Burke testified that when a confirmation request was received, “you'd pull the file, get the information, give it to the supervisor or manager to verify and then send it to them.” Burke Depo., December 13, 2002, 9 (FDIC Ex. 898). Burke further testified that the supervisor reviewed the information before it was sent to the requesting party to make sure the information was correct. Burke Depo., December 13, 2002, 17 (FDIC Ex. 898). He testified that Advanta responded to confirmation requests from auditors “numerous times.” Burke Depo., December 13, 2002, 17 (FDIC Ex. 898). He responded to two confirmation requests from Grant Thornton regarding Keystone's loans, one in January of 1999 and the other in March of 1999. Both of these responses were correct, indicating that Advanta was servicing approximately $6 million dollars worth of loans on Keystone's behalf. Burke testified that in the four or five years he worked with Ramirez she never confused one investor with another investor. Burke Depo., December 13, 2002, 28-29 (FDIC Ex. 899). Ramirez herself testified that she had never made a mistake concerning *693 investor numbers. Ramirez Depo., September 26, 2002, 189 (FDIC Ex. 896); see also Romero Depo., September 25, 2002, 109-10 (FDIC Ex. 905) (“[T]here's no doubt in our minds, the investor number is such an integral part of how we service loans, it's the thing that drives where payments go, where remittances go. There's no question of that ever being inaccurate.”). 76. Ramirez' unequivocal testimony was that the loans boarded in Investor No. 406 belonged to United National Bank.
Ramirez Depo., September 26, 2002, 142-43 (FDIC Ex. 896). Her responses in this regard were not speculative. Ramirez further testified that, in sending the email, she specifically “felt like I had to make sure that I identified the information being provided was not Keystone's but was United's.” Ramirez Depo., September 26, 2002, 175 (FDIC Ex. 896). 77. Upon further questioning, Ramirez testified:
Ramirez Depo., September 26, 2002, 179-80 (FDIC Ex. 896). The court believes that the foregoing testimony is admissible under F.R.E. 406 for the reasons cited above. However, out of an abundance of caution, the court has disregarded this and any other arguably speculative testimony by Ramirez in making its findings and conclusions. 78. The Court finds that Ramirez did not state to Buenger that “the loans coded under the United name actually belonged to Keystone as of December 31, 1998,” as reflected in Buenger's handwritten note. Buenger, June 2, 2004, Tr. at 67, Gunter Depo., December 20, 2002, 269-74 (FDIC Ex. 913); Carmichael, May 24, 2004, Tr. at 69-70; Ramirez Depo., September 26, 2002, 143-45; 179-80, 185-89, 192-93, 196, 198-200, 222, 247-49 (FDIC Ex. 896). Ramirez clearly knew that United owned the $236 million in loans, as she worked with United with respect to the loans on a regular basis, repeatedly provided United with documentation of its ownership of the loans and never demonstrated any confusion about who owned the loans. Ramirez Depo., September 26, 2002, 143-45; 179-80, 185-89, 192-93, 196, 198-200, 222, 247-49 (FDIC Ex. 896); J. 78. The Court finds that Ramirez did not state to Buenger that “the loans coded under the United name actually belonged to Keystone as of December 31, 1998,” as reflected in Buenger's handwritten note. Buenger, June 2, 2004, Tr. at 67, Gunter Depo., December 20, 2002, 269-74 (FDIC Ex. 913); Carmichael, May 24, 2004, Tr. at 69-70; Ramirez Depo., September 26, 2002, 143-45; 179-80, 185-89, 192-93, 196, 198-200, 222, 247-49 (FDIC Ex. 896). Ramirez clearly knew that United owned the $236 million in loans, as she worked with United with respect to the loans on a regular basis, repeatedly provided United with documentation of its ownership of the loans and never demonstrated any confusion about who owned the loans. Ramirez Depo., September 26, 2002, 143-45; 179-80, 185-89, 192-93, 196, 198-200, 222, 247-49 (FDIC Ex. 896); J. Wilson, May 21, 2004, Tr. at 27. Moreover, if Ramirez had made such a statement, GAAS would require that Buenger obtain written confirmation of such a significant fact, in order to avoid a swearing match over what was said. Carmichael, May 24, 2004, Tr. at 71-73, 81-82; Goldman, June 9, 2004, Tr. at 69, 72-73. The auditing standards require an auditor to obtain the best evidence they can within the time constraints and money constraints set on them. Goldman, June 9, 2004, Tr. at 71. A written confirmation is the highest form of evidential matter an auditor can receive. Goldman, June 9, 2004, Tr. at 71. There were no time or money constraints that would prevent Buenger from obtaining the best evidence-a written confirmation from Ramirez that Keystone owned the loans. Goldman, June 9, 2004, Tr. at 72-73. Oral confirmations should be documented in the workpapers. If the information in the oral confirmation is significant, the auditor should request the parties involved to submit written confirmation of the specific information directly to the auditor. As previously stated, Buenger failed to obtain any such written confirmation. Carmichael, May 24, 2004, Tr. at 71-73, 81-82; Goldman, June 9, 2004, Tr. at 54-55; FDIC Ex. 439 (AU 330.29). 79. The $236 million exception was a significant auditing question, but Quay was not involved in evaluating its significance. Carmichael, May 24, 2004, Tr. at 77-78. 80. The auditor with final responsibility for the audit should direct assistants to bring to his attention significant accounting and auditing questions raised during the audit so that he may assess their significance. GT Ex. 267 (AU 311.12). Quay violated GAAS by failing to supervise or participate in the evaluation of the Advanta confirmation responses. Carmichael, May 24, 2004, Tr. at 56-58, 77-79; FDIC Exs. 709, 710. VIII. Grant Thornton Issues its Audit Report 81. On March 24 and 25, 1999, Quay presented several members and prospective members of Keystone's board and Keystone's shareholders with draft copies of Keystone's December 31, 1998 financial statements and told them that Keystone was going to get a clean opinion on its financial statements. Budnick, May 18, 2004, Tr. at 122-30; G. Ellis, May 22, 2004, Tr. at 13-14, 46; Gibson, May 20, 2004, Tr. at 54-56; Kaufman, May 18, 2004, Tr. at 198-99, 219-20; Quay, June 4, 2004, Tr. at 74-77, 84-85; FDIC Exs. 263, 882. At the shareholders meeting the next day, Quay *695 also distributed copies of Keystone's financial statements. G. Ellis, May 22, 2004, Tr. at 14-15; Kaufman, May 18, 2004, Tr. at 199-200; Quay, June 4, 2004, Tr. at 78-79, 106-09; FDIC Ex. 172. Neither Quay nor Buenger made any disclosure to the Board or shareholders of the $236 million discrepancy that Buenger had discovered. Budnick, May 18, 2004, Tr. at 128-29; Carmichael, May 24, 2004, Tr. at 64; Quay, June 4, 2004, Tr. at 78, 80. Quay violated GAAS by making statements to Keystone's directors, prospective directors, and officers that Keystone was going to receive a “clean opinion” on its financial statements when he had no reasonable basis for making such statements. Carmichael, May 25, 2004, Tr. at 27-28, 175. 82. On April 19, 1999, Grant Thornton issued and delivered to Keystone's board its audit report stating that Keystone's financial statements were fairly stated in accordance with GAAP, and reflecting a shareholder's equity of $184 million. Budnick, May 18, 2004, Tr. at 131-33; G. Ellis, May 22, 2004, Tr. at 23-24, 48-50; Ellis Ex. 4; FDIC Exs. 291, 621. In fact, Keystone was insolvent as of year-end, 1998. Carmichael, May 24, 2004, Tr. at 41. The audited financial statements provided by Quay to the board on April 19, 1999, were substantially the same as the financial statements Quay had provided board members and shareholders in March, 1999. Budnick, May 18, 2004, Tr. at 136-37; Kaufman, May 18, 2004, Tr. at 203-05; FDIC Exs. 291, 296. Grant Thornton's audit report violated GAAS by offering a “clean opinion” on Keystone's financial statements without having adequate evidence to support that opinion and having substantial evidence that contradicted the opinion. Carmichael, May 24, 2004, Tr. at 75; Carmichael, May 25, 2004, Tr. at 28-30. 83. Because Keystone's financial statements reflected ownership of more than $500 million in loans that were not in fact owned by Keystone, the financial statements were materially misstated. Quay, June 4, 2004, Tr. at 88. 84. Grant Thornton represented to Keystone's board that it had encountered no significant difficulties in performing the year-end, 1998 audit. FDIC Ex. 296. 85. Keystone's board of directors and Gary Ellis reasonably relied on Grant Thornton's report. The report led Keystone's board to believe that the Bank was in good financial condition. Based on Grant Thornton's report, Keystone's board continued to declare dividends and operate the Bank. If Grant Thornton had exercised due professional care in connection with its audit, the fraud would have been discovered. If Grant Thornton had disclosed to Keystone's board or the OCC the fact that Keystone was carrying over $400 million in loans on its books that were not owned by Keystone, the Bank would have been closed by April 21, 1999. Budnick, May 18, 2004, Tr. at 122, 138-39, 145-46; G. Ellis, May 22, 2004, Tr. at 55; Gibson, May 20, 2004, Tr. at 35-37, 59; Johnson, May 17, 2004, Tr. at 148; Kaufman, May 18, 2004, Tr. at 205-07; Potter, May 27, 2004, Tr. at 14; Quay, June 4, 2004, Tr. at 74-76; C. Wilson, May 17, 2004, Tr. at 240; FDIC Ex. 341. IX. Gary Ellis Becomes President of Keystone 86. In 1984, Gary Ellis was President of the Bank of Dunbar. The Bank of Dunbar was later merged into United Bank at which time Ellis joined the management team at United, eventually becoming its President. J. Wilson, May 21, 2004, Tr. at 44-46. 87. From the time of the merger with the Bank of Dunbar until the time Ellis left United, United more than doubled in size. Ellis was instrumental in the growth *696 of United. J. Wilson, May 21, 2004, Tr. at 47. 88. In 1998, United National Bank merged with George Mason Bankshares of Virginia. G. Ellis, May 22, 2004, Tr. at 9. In the spring of 1999, following the merger, Ellis voluntarily began looking for employment outside United. G. Ellis, May 22, 2004, Tr. at 10. Ellis had dealt with Keystone in the past, and on March 19, 1999, Billie Cherry, Chairman of Keystone's board, invited Ellis to attend Keystone's annual shareholders meeting on March 25, 1999. G. Ellis, May 22, 2004, Tr. at 10-13. During that call, Cherry suggested that Ellis should consider becoming president of Keystone. G. Ellis, May 22, 2004, Tr. at 10-13. 89. Ellis was not fired or told to leave United, had no deadline for leaving United, and could have remained at United rather than leaving for the Keystone position. G. Ellis, May 22, 2004, Tr. at 9-10. 90. In late March 1999, Ellis visited Keystone and discussed with Keystone directors Gibson, Budnick, Kaufman and Church his potential employment as president of the Bank. Gibson received “pretty glowing recommendations” about Ellis. Gibson, May 20, 2004, Tr. at 85. Ellis received a rolling two-year contract at $375,000 per year with benefits. G. Ellis, May 22, 2004, Tr. at 33-36; Gibson, May 20, 2004, Tr. at 90. The contract discussions included compensation for board meetings and committee meetings. G. Ellis, May 22, 2004, Tr. at 34; Gibson, May 20, 2004, Tr. at 90. The total value of the final contract between Ellis and Keystone was approximately $460,000 to $470,000 per year. L. Ellis, May 26, 2004, Tr. at 16, 21; Ellis Ex. 9. 91. Doing his due diligence before accepting a position, Ellis attended Keystone's board meeting on March 24 and annual shareholders meeting on March 25, 1999. G. Ellis, May 22, 2004, Tr. at 13-18; Gibson, May 20, 2004, Tr. at 82-82; FDIC Ex. 263. At both meetings, Quay passed out copies of the financial statements Grant Thornton was auditing for Keystone. G. Ellis, May 22, 2004, Tr. at 14-15. Quay also told Ellis and other members of the board that Grant Thornton was going to give Keystone a clean audit opinion for 1998. Budnick, May 18, 2004, Tr. at 122-30; G. Ellis, May 22, 2004, Tr. at 46; Gibson, May 20, 2004, Tr. at 54-56; Kaufman, May 18, 2004, Tr. at 198-99, 219-20. 92. Ellis visited Keystone again, on or about March 30, and Quay offered similar assurances at that time. G. Ellis, May 22, 2004, Tr. at 16-17. 93. Ellis relied on the financial statements Quay gave him, and Quay's oral representations to Ellis and others that Keystone was going to get a clean audit opinion. G. Ellis, May 22, 2004, Tr. at 15-16, 55. On April 2, 1999, Ellis met with his attorneys to draft a proposed employment agreement with Keystone. G. Ellis, May 22, 2004, Tr. at 18. During the first two weeks of April 1999, Ellis met with Church and Cherry regarding their expectations for him. G. Ellis, May 22, 2004, Tr. at 20. It was decided that Ellis would be responsible for the “banking” business at Keystone as opposed to the mortgage loan securitizations. G. Ellis, May 22, 2004, Tr. at 20; Ellis Ex. 9. 94. On April 19, 1999, at a Keystone board meeting, Ellis reviewed Grant Thornton's final audit report on Keystone for 1998, and that report showed that Grant Thornton gave Keystone a clean opinion. G. Ellis, May 22, 2004, Tr. at 23-27; Ellis Ex. 4. The Board voted to approve Ellis' hiring as president of Keystone, subject to the signing of a contract and approval by the OCC. G. Ellis, May 22, 2004, Tr. at 28-29. Ellis resigned from United by letter dated April 20, 1999. G. *697 Ellis, May 22, 2004, Tr. at 92-93; Ellis Ex. 7. 95. Ellis' employment contract was signed on April 26, 1999. G. Ellis, May 22, 2004, Tr. at 29. 96. Quay intended and knew that Ellis would rely on his statements, and Ellis did, in fact, rely on them. Quay, June 4, 2004, Tr. at 74-88; G. Ellis, May 22, 2004, Tr. at 15-16, 55; Ellis Ex. 4. X. The OCC Discovers the Fraud and the Bank is Closed 97. In 1999, an examination of Keystone was conducted by a team of OCC examiners. Johnson, May 17, 2004, Tr. at 102-03; C. Wilson, May 17, 2004, Tr. at 193. The examination began on site in late June/early July of 1999. Johnson, May 17, 2004, Tr. at 103; C. Wilson, May 17, 2004, Tr. at 193. Members of the exam team included Joey Johnson, Cindy Wilson, and Mark Blair. Johnson, May 17, 2004, Tr. at 102-03; C. Wilson, May 17, 2004, Tr. at 193. Blair was the examiner in charge of the examination. C. Wilson, May 17, 2004, Tr. at 193. 98. Throughout the examination, the bank examiners had difficulty obtaining accurate records from the servicers. Johnson, May 17, 2004, Tr. at 105. They were informed in late July or early August by Church and Ellis that the Bank did not want the examiners to contact the servicers directly. C. Wilson, May 18, 2004, Tr. at 21; FDIC Ex. 353. 99. Church and Graham made several efforts to have Advanta and Compu-Link respond to the OCC with information on loans owned by United as well as Keystone, in order to keep the fraud concealed. Romero Depo., September 25, 2002, 266-67 (FDIC Ex. 905); C. Wilson, May 17, 2004, Tr. at 217-23; FDIC Exs. 365, 367, 369, 373, 374, 413. 100. On August 5, 1999, examiners met with Church, Graham, and Cherry and indicated they wanted to contact the servicers directly to obtain accurate information. C. Wilson, May 18, 2004, Tr. at 22, 213; FDIC Ex. 354. Church, Graham, and Cherry became irate and insisted that such contacts would damage the Bank's reputation. C. Wilson, May 18, 2004, Tr. at 22, 213-15. 101. In early August, bank examiners learned that Keystone had the ability to manipulate servicer data and servicer reports that, while appearing to come directly from the servicers, were actually prepared by the Bank. C. Wilson, May 18, 2004, Tr. at 42-44; Blair, June 4, 2004, Tr. at 164-65. As a result, examiners sent by registered or certified mail, on August 6, 1999, requests directly to Compu-Link and Advanta for information on Keystone loans. C. Wilson, May 17, 2004, Tr. at 215-17; C. Wilson, May 18, 2004, Tr. at 45; FDIC Exs. 350, 351. 102. On Monday, August 23, 1999, the examiners, incident to their examination of the Bank, contacted the Bank's loan servicers by phone to determine the balances of loans actually owned by Keystone. Johnson, May 17, 2004, Tr. at 106-07; C. Wilson, May 17, 2004, Tr. at 224-25; FDIC Exs. 369, 408. During that week, Joey Johnson spoke by telephone with Beverly Reck, an employee of Compu-Link, one of the servicers, and was told by Reck that Compu-Link was boarding $31 million in Keystone Loans. Johnson, May 17, 2004, Tr. at 106; FDIC Ex. 408. 103. Blair and Wilson contacted Advanta and learned that Advanta was only servicing approximately $6 million in Keystone loans, far less than the approximately $242 million that Keystone was reporting. C. Wilson, May 17, 2004, Tr. at 233; Johnson, May 17, 2004, Tr. at 122-26; FDIC Exs. 408, 413, 379. 104. These contacts with Compu-Link and Advanta led the examiners to quickly *698 conclude that the Bank's books overstated loans it owned by approximately $515 million. C. Wilson, May 17, 2004, Tr. at 230. 105. On Wednesday, August 25, 1999, Blair, SS Analyst Kathy Gerardy and Johnson met with Ellis and Quay to obtain an explanation for the discrepancy between the servicers' records and the Bank's records. Johnson, May 17, 2004, Tr. at 112; FDIC Ex. 379. Church joined the meeting after it began. Johnson, May 17, 2004, Tr. at 112; FDIC Ex. 379. Church and Quay were informed that the examiners' direct contacts with the servicers indicated the Bank was reporting over $500 million in loans boarded at the two servicers that were not shown on the servicers' records. Johnson, May 17, 2004, Tr. at 112; FDIC Ex. 379. Church insisted the Bank owned the $500 million of loans in question and stated she had no idea why the records showed a difference. FDIC Ex. 379. Quay repeatedly asserted that the numbers had been reconciled and confirmed by Grant Thornton auditors at year-end 1998. Johnson, May 17, 2004, Tr. at 117; FDIC Ex. 379. The examiners told Quay and Church that the Bank would have to provide proof that it owned the entire balance of loans it claimed. FDIC Ex. 379. 106. Quay left the meeting and told Buenger to have the confirmations faxed to the Bank, which Buenger did. Buenger, June 2, 2004, Tr. at 162-64. Buenger called Dale Schaffer in Grant Thornton's Cincinnati office, and told him to fax the servicer confirmation workpapers to her. Buenger, June 2, 2004, Tr. at 164-65. She reviewed the fax to make sure Schaffer had sent her what she wanted. Buenger, June 2, 2004, Tr. at 167. 107. Quay and Buenger represented to the OCC that the fax contained the confirmations Buenger received in connection with her audit fieldwork. Buenger, June 2, 2004, Tr. at 167-68; Johnson, May 17, 2004, Tr. at 117-19. 108. Later, Quay provided copies of confirmation requests that were prepared and signed by Church and printed on Bank letterhead, but mailed from Grant Thornton's office. Johnson, May 17, 2004, Tr. at 117-19; FDIC Exs. 379, 754, 755. 109. The Advanta confirmation was initialed “S.B. 3/17/99” and “S.J.Q. 3/23/29.” FDIC Ex. 754. The initials were identified as those of Susan Buenger and Stanley Quay. The response from Advanta showed an ending balance as of 12/31/98 of $6,342,110.34 for investor number 405, Keystone Bank, and a balance of $236,221,923.07 for investor number 406, United National Bank. FDIC Ex. 754. The two numbers had been added together by Buenger in a handwritten notation at the bottom of the response to produce a total of $242,564,033.41. FDIC Ex. 754. Johnson described this as a “forced reconciliation” to arrive at the total the Bank was reporting for Advanta-serviced loans the Bank owned with no basis to support adding the two numbers together. Johnson, May 17, 2004, Tr. at 124-25. 110. On or about August 25, 1999, Buenger was asked by the examiners to explain why she had added together the two numbers provided by Advanta in its response to the confirmation request. Johnson, May 17, 2004, Tr. at 125, 137-38; FDIC Ex. 379. Buenger stated that the loans coded 406 were under a “bad name” and should have been included in the total of loans owned by Keystone. Johnson, May 17, 2004, Tr. at 126, 138; FDIC Ex. 379. At that time, Buenger did not provide any evidence that she did anything further to verify the Bank's claim that it owned all the loans. Johnson, May 17, 2004, Tr. at 126-28, 138. She did not assert at that time, as she did later, that Patricia Ramirez of Advanta had told her *699 the loans coded as United Loans were actually owned by Keystone, nor did she offer, or refer to, a handwritten note produced later that read: “Per discussion with Patricia Ramirez at (619) 674-3876, the loans coded under the ‘United’ name actually belonged to Keystone as of December 31, 1998.” Johnson, May 17, 2004, Tr. at 126. Buenger admitted the note was important evidence of her confirmation work. Buenger, June 2, 2004, Tr. at 169. The documents in the fax Buenger gave to the OCC show that Keystone owned $6 million in loans and that United owned $236 million in loans being serviced by Advanta. FDIC Exs. 408, 754. 111. The only written confirmations Grant Thornton ever received with regard to the loans serviced by Advanta showed that $236 million of the loans carried on Keystone's books were actually owned by United. Johnson, May 17, 2004, Tr. at 179-81; Carmichael, May 24, 2004, Tr. at 68-69, 73, 82; FDIC Ex. 754. Even if Buenger had received an oral confirmation from Ramirez at Advanta that Keystone, and not United, was the owner of these loans, under GAAS, Buenger was obligated to obtain written confirmations. Carmichael, May 24, 2004, Tr. at 70-71; FDIC Ex. 485. According to GAAS, if information in an oral confirmation is significant, theauditor cannot rely on the oral confirmation, but must obtain the confirmation from the servicer in writing. Carmichael, May 24, 2004, Tr. at 71-72; FDIC Ex. 485. The $236 million at issue here was significant since it constituted about one-fourth of the Bank's claimed assets. Carmichael, May 24, 2004, Tr. at 71-72. Therefore, Buenger and Grant Thornton were negligent in their failure to obtain written confirmation from Advanta of what Buenger asserts Ramirez told her over the telephone. Carmichael, May 24, 2004, Tr. at 68-73. 112. On or after August 25, 1999, Buenger made changes to her workpapers. Buenger, June 2, 2004, Tr. at 53-55. Initially, she did not admit this fact in her deposition, but when confronted with the evidence, she admitted that she had changed her workpapers. Buenger, June 2, 2004, Tr. at 170-71; FDIC Ex. 500. The e-mail from Ramirez to Buenger, dated April 7, 1999, is initialed by Buenger on March 17, 1999 and by Quay on March 23, 1999, dates which on their face are not correct. Johnson, May 17, 2004, Tr. at 127-29; FDIC Ex. 754 at p. 17. 113. When informed on August 26, 1999, that some $500 million in loans were missing, Quay stated finding the loans would not be a problem, they could simply trace the interest payments back to the mortgages they represented. Kaufman, May 18, 2004, Tr. at 216-17. Quay attempted to do this, but after about 45 minutes was not successful. Kaufman, May 18, 2004, Tr. at 217. Quay had indicated that if actual cash receipts in respect of debt service on the loans could be located, the loans were probably real and belonged to Keystone. Budnick, May 18, 2004, Tr. at 148. Similarly, the absence of cash receipts would be a strong indicator that the loans did not exist. Budnick, May 18, 2004, Tr. at 148. 114. On August 26, 1999, Quay called Patricia Ramirez and contended that Keystone owned $242 million in loans serviced by Advanta. Ramirez told Quay that he was wrong, that Keystone only owned $6 million in loans being serviced by Advanta, and that she had never confirmed a larger number to Grant Thornton, which was true. Ramirez Depo., September 26, 2002, 201-06 (FDIC Ex. 896). 115. Also on August 26, 1999, Quay called Lynn Ellen (“Dee”) Romero, a client support specialist for Advanta. She also told Quay that Advanta was servicing only *700 $6 million in loans owned by Keystone. Quay said that Advanta was sending millions of dollars to Keystone every month. Romero tried to straighten Quay out on these issues, but he resisted straightening. Romero Depo., September 25, 2002, 99-109, 269-71 (FDIC Ex. 905). 116. On or about August 26, 1999, Quay and Buenger checked the remittances received by Keystone from Compu-Link and Advanta during 1999. They were unable to find evidence of income to support Keystone's ownership of over $500 million in loans being serviced by Compu-Link and Advanta, nor could they find evidence to support Keystone's reported interest income for 1999. Budnick, May 18, 2004, Tr. at 148-49; Buenger, June 2, 2004, Tr. at 172-73; Kaufman, May 18, 2004, Tr. at 217-18; Quay, June 3, 2004, Tr. at 155-56. 117. After their August 25, 1999 meeting, efforts were made by Bank management, the external auditors and the examiners to locate the missing loans. As part of these efforts, Johnson prepared a calculation of interest received by Keystone that quickly showed the Bank to be receiving far less in interest income than it should have received on the number of loans it claimed to own. Johnson, May 17, 2004, Tr. at 142-43, 185-87. 118. At the regular meeting of the Bank's board of directors on August 26, 1999, Ann Jaedicke, Kathy Gerardy and Blair of the OCC and Prosser of the FDIC advised the board that they had contacted two of the Bank's servicers, Advanta and Compu-Link, and learned that $515 million of loans the Bank had booked as owned were not in fact owned by the Bank. Gibson, May 20, 2004, Tr. at 70-71. 119. On August 26, 1999, examiners gave the Bank's board of directors notice that they had until the close of business on Monday, August 30, to account for the discrepancy. FDIC 408. In the meantime, the examiners themselves proceeded to visit the offices of the servicers to examine relevant records. FDIC 408. 120. After the August 26, 1999 meeting, Gibson heard Quay questioning Buenger about the confirmation of the loans. Gibson, May 20, 2004, Tr. at 80-81. When Buenger revealed that she had relied on a phone call to confirm the Advanta loans, Quay got angry with Buenger and criticized her for relying on a phone call and failing to follow up in writing. Gibson, May 20, 2004, Tr. at 80-81. 121. On Friday, August 27, 1999, Johnson traveled to Compu-Link headquarters in Lansing, Michigan, accompanied by FDIC examiners Phil Yannick and Mike Pisano. Johnson, May 17, 2004, Tr. at 152, 174; FDIC Ex. 408. The three examiners met with CFO Reck and MIS manager Dan Pearson of Compu-Link and were provided copies of trial balances and remittance records for the universe of loans owned by Keystone and those held in trust for Keystone securitizations and owned by other institutions. FDIC Ex. 408. The examiners also examined copies of reports routinely provided to the Bank by Compu-Link. FDIC Ex. 408. Reck and Pearson explained how Compu-Link identified loans held by Keystone and how it identified loans in securitizations owned by other institutions. FDIC Ex. 408. Reck also provided copies of remittance checks sent to Keystone since October, 1998. Johnson, May 17, 2004, Tr. at 188; FDIC Ex. 408. It was clear to the examiners that the Bank had not removed from its books loans it had sold into securitizations. FDIC Ex. 408. 122. On or about August 27, 1999, FDIC examiner Kristin Jertberg visited the office of Advanta and obtained records supporting the balances of loans owned by Keystone and serviced at Advanta. FDIC Ex. 408. Loans for code 405 were the only *701 loans owned by Keystone and were approximately $6 million for the relevant time period. FDIC Ex. 408. Remittance records from Advanta supported the total of $6 million in Keystone-owned loans rather than approximately $242 million the Bank was carrying on its books. FDIC Ex. 408. 123. On August 29, 1999, Quay and Buenger and several Keystone employees checked Keystone's remittances from Compu-Link and Advanta, and in less than two hours determined that the remittances were only a small fraction of the amount reported on Keystone's books, and that the remittances did not support Keystone's claimed ownership of $558 million in loans. Ellis, May 22, 2004, Tr. at 37-40, 78-80, 86, 94-95. 124. On August 30, 1999, the examiners presented their findings to senior management in Washington D.C. FDIC Ex. 408. A conference call was held with Church, Ellis, Graham, Quay, Reck and Compu-Link president, John LaRose. FDIC Ex. 408. Quay stated that he had no specific explanation for the $515 million discrepancy previously identified, but that he had discovered approximately $500 million in loans boarded by Compu-Link that the Bank was not getting credit for owning. FDIC Ex. 408. Quay later provided a spreadsheet listing the loans he claimed supported a $500 million “boarding error” at Compu-Link. FDIC Ex. 408. LaRose stated that this was false and the examiners insisted that an explanation for the $515 million discrepancy be provided first before dealing with the purported boarding error. FDIC Ex. 408. 125. Late in the evening of August 30, 1999, Ellis, Quay, and Gibson met at Webster's Restaurant in Bluewell, West Virginia. Quay and Ellis told Gibson that Church had admitted falsely reporting income from the missing loans on the Bank's books. Gibson, May 20, 2004, Tr. at 75. 126. On August 31, 1999, the examiners obtained affidavits from Compu-Link and Advanta attesting that the balances of Keystone owned loans serviced by them were, respectively, $31 million and $6 million. FDIC Ex. 408. Bank management failed to provide a plausible explanation for the missing loans, but did confirm that there was no additional cash influx from the loans beyond remittances the examiners had confirmed with the servicers. FDIC Ex. 408. The examiners concluded that the Grant Thornton auditors had been reconciling Bank generated documents with servicer reports the Bank had obtained in electronic format and “doctored,” that they failed to “follow the audit trail on actual remittance received” by the Bank on loans it owned, and that even a small principal and interest analysis would have shown that “the volume of loans reported by the Bank was bogus.” FDIC Ex. 408. 127. Meredith Hale, a native of McDowell County, West Virginia, was hired by Keystone in November, 1994. Hale Depo., August 27, 2002, 6-9 (FDIC Ex. 889). She had no previous work experience in the banking industry. Hale Depo., August 27, 2002, 9 (FDIC Ex. 889). As part of her job at Keystone, Hale received monthly reports from loan servicers during the 1998 time period. Hale Depo., August 27, 2002, 138, 140-41 (FDIC Ex. 889). Hard copies of the servicers' reports were kept in a file cabinet under the stairs near Church's office. Hale Depo., August 27, 2002, 142 (FDIC Ex. 889). Hale would do a monthly reconciliation to ensure that the servicers' records were correct. Hale Depo., August 27, 2002, 143-53 (FDIC Ex. 889). As part of this process Hale had electronic access to records at both Compu-Link and Advanta and communicated frequently with United Bank. Hale Depo., August 27, 2002, 146-53 (FDIC Ex. 889). Periodically, Church would give Hale a loan inventory list for reconciliation. Hale Depo., August *702 27, 2002, 153-55 (FDIC Ex. 889). Sometime between March and May, 1999, Hale noticed that Church had included approximately $400 million in United-owned loans as part of the Keystone inventory. Hale Depo., August 27, 2002, 156-59 (FDIC Ex. 889). Hale deleted the United loans from the Bank's inventory leaving only around $40 million in the Keystone inventory. Hale Depo., August 27, 2002, 156-59 (FDIC Ex. 889). Church told her she had done it wrong and that the deleted loans did not belong to United “outright.” Hale Depo., August 27, 2002, 157 (FDIC Ex. 889). Hale testified that where United was paid the principal balance, the accrued interest, and the premium on the loan, it seemed to be that United owned the loan. Hale Depo., August 27, 2002, 157 (FDIC Ex. 889). Hale's testimony illustrates the ease with which the fraud could have been discovered had Grant Thornton made proper inquiry of the servicers, United, and even Hale. 128. Compu-Link and Advanta were both open and helpful in providing and explaining requested information. Johnson, May 17, 2004, Tr. at 111-12, 133-34; C. Wilson, May 17, 2004, Tr. at 223, 226-29; C. Wilson, May 18, 2004, Tr. at 63-64; Romero Depo., September 25, 2002, 266-67 (FDIC Ex. 905); FDIC Exs. 368, 369, 372, 408. From this, and other evidence of record, the court concludes that the same level of cooperation, disclosure and assistance would have been readily available to Grant Thornton's auditors. 129. The examiners concluded that the loans were not missing but were in fact owned by others. On Wednesday, September 1, 1999, the Bank was determined to be insolvent and was closed. Johnson, May 17, 2004, Tr. at 145. The OCC entered an order finding that Keystone had been including loans that it no longer owned as assets on its balance sheet. FDIC Exs. 405, 406. The Comptroller of the Currency appointed the FDIC as receiver for the insolvent Bank. Johnson, May 17, 2004, Tr. at 146; FDIC Exs. 405, 406, 407, 409. Had the discrepancy been discovered earlier the Bank would have been deemed insolvent and closed at that time since the Bank was critically undercapitalized. Johnson, May 17, 2004, Tr. at 148; C. Wilson, May 17, 2004, Tr. at 240. 130. Unlike Grant Thornton, the bank examiners were not conducting audits governed by professional auditing standards with the objective of determining whether the financial statements were fairly stated in all material respects. Blair, June 4, 2004, Tr. at 178. Specifically, the examiners had no responsibility to test Keystone's ownership of loans and reported interest income; the OCC relied on the Bank's outside auditors, i.e., Grant Thornton, to confirm the existence of the loan inventory. Blair, June 4, 2004, Tr. at 178-79. Because of their significance to Keystone's financial statements, confirming the existence of the loans was among Grant Thornton's chief duties. When the OCC put on their auditor “hat” in August of 1999 and confirmed the existence of the loan inventory, they were able to discover the fraud in approximately two weeks. Blair, June 4, 2004, Tr. at 179. 131. There is no evidence that the OCC or FDIC did anything to interfere with Grant Thornton's duties with respect to the Keystone engagement. 132. There is no evidence that the outside directors did anything to interfere with Grant Thornton's duties with respect to the Keystone engagement. 133. On the day the Bank was closed, Gary Ellis, then serving as President of Keystone, was politely, but summarily, ushered out of his office, relieved of the keys to his company vehicle, and left on the street in Keystone. G. Ellis, May 21, 2004, Tr. at 152-54. There is no evidence *703 whatsoever that Ellis had any role in perpetrating the fraud that led to the closure of Keystone, was aware of any of the fraudulent acts of McConnell, Cherry, Graham, Church, and others, or was in possession of any information or knowledge that would have made him suspect that such misconduct was going on. XI. FDIC's Damages 134. The court found the opinions of the experts of the FDIC and Gary Ellis-Douglas Carmichael, Harry Potter, and Lane Ellis-to be more persuasive than the expert witnesses offered by Grant Thornton, especially with respect to the issues of Grant Thornton's negligence and the appropriate measure of damages. 135. From April 21, 1999, until the Bank was closed on September 1, 1999, the additional cost of operations was $24,004,688. Potter, May 26, 2004, Tr. at 190-91; FDIC Exs. 627, 632, 633. This figure comprises expenses that would not have been incurred had Keystone been closed on April 21, 1999. Potter, May 26, 2004, Tr. at 160-61. This amount included expenses such as wages and salaries of Bank employees; interest paid on CDs, IRAs, and savings accounts; office supplies; legal, consulting, and accounting fees; directors' fees; utilities; etc. FDIC Ex. 632. 136. Keystone received $153,143 in revenues that it would not have received had the Bank been closed on April 21, 1999. Potter, May 26, 2004, Tr. at 190-91; FDIC Ex. 627. 137. On July 23, 1999, the Bank paid business operating taxes to McDowell County in the amount of $239,387. Potter, May 26, 2004, Tr. at 198; Potter, May 27, 2004, Tr. at 93; FDIC Ex. 627. Had the Bank been closed by April 21, 1999, these taxes would not have been paid. Potter, May 26, 2004, Tr. at 160-61. 138. A conservative estimate of the amount of interest the Bank would have received from April 21, 1999 until September 1, 1999 on loans originated after October 31, 1998 is $66,156. FDIC Ex. 627. 139. Based on the foregoing, from April 21, 1999, until the Bank was closed on September 1, 1999, the net additional cost of operations was $24,024,777. 140. From April 21, 1999, until the Bank was closed on September 1, 1999, the Bank paid dividends in the amount of $1,056,000. Potter, May 26, 2004, Tr. at 199-201; FDIC Exs. 626, 633. If the Bank had been closed by April 21, 1999, these dividends would not have been paid. Potter, May 26, 2004, Tr. at 200. 141. Grant Thornton was paid $595,400 in fees on the Keystone engagement. Potter, May 27, 2004, Tr. at 4-6; FDIC Ex. 624. This amount includes $60,150 for tax services and Lewtan model services. Potter, May 27, 2004, Tr. at 5; FDIC Ex. 624. 142. The net worth comparison, which Grant Thornton contends is the appropriate measure of damages, would actually have resulted in a greater damage figure. Potter, May 26, 2004, Tr. at 159-60; Potter, May 27, 2004, Tr. at 104-05. Grant Thornton has countered this argument by contending that the value of the residuals actually increased during the relevant time period. In support of this contention, Grant Thornton offered the expert testimony of Dr. John McConnell. 143. According to McConnell, more likely than not, the value of the Keystone residuals increased over the various damage windows considered by Potter. McConnell, June 7, 2004, Tr. at 148. The methodology McConnell used to support his opinion was what he referred to as a “comparable security valuation approach.” McConnell, June 7, 2004, Tr. at 149. Essentially, McConnell compared the Keystone residuals to Fannie Mae interest only securities, i.e., the counter bond index.*704FN2 McConnell, June 7, 2004, Tr. at 156-57, 180. The prices of the Fannie Mae interest only securities increased from October 1998 until the end of 2000. McConnell, June 7, 2004, Tr. at 158. Based on his opinion that Keystone residuals moved in the same direction as the Fannie Mae interest only securities, McConnell concluded that the prices of the Keystone residuals would have increased 23 percent from April 19, 1999 until September 1, 1999. McConnell, June 7, 2004, Tr. at 161-62; GT Ex. 297.
144. McConnell never did a valuation of the Keystone residuals. McConnell, June 7, 2004, Tr. at 147, 184. McConnell also conceded that if the Keystone residuals did not respond to interest rates in the same way as the Fannie Mae interest only securities, his opinion would be of questionable validity. McConnell, June 7, 2004, Tr. at 181. 145. The court does not find persuasive McConnell's theory that, more likely than not, the value of the residuals increased from April 19, 1999 to September 1, 1999. Keystone's own financial statements showed the value of the residuals declined during the time period in question. McConnell, June 8, 2004, Tr. at 7. As of March 1999, Bear Stearns valued Keystone's residual interests in 1998-P2 at somewhere between zero and .35 percent. McConnell, June 8, 2004, Tr. at 12-13. Quay himself admitted that Keystone's valuation of the residuals was greater than their market value. Quay, June 4, 2004, Tr. at 29; FDIC Ex. 286. Under McConnell's methodology, as of year-end 1998, the value of the residuals would have been $569 million. McConnell, June 8, 2004, Tr. at 30. Grant Thornton's own audit of Keystone's financial statements indicated the value of the residuals would be $396 million for the same time period. McConnell, June 8, 2004, Tr. at 30. 146. The Fannie Mae interest only securities were not similar enough to Keystone's residuals to support McConnell's conclusions. For example, prepayments on Fannie Mae mortgages slowed down between September 1998 and September 1999, resulting in an increase in value for that same period. McConnell, June 8, 2004, Tr. at 47-49. Interest rates also rose over the same period. McConnell, June 8, 2004, Tr. at 52. However, prepayments on Keystone loans went up during the same period. McConnell, June 8, 2004, Tr. at 50-52. According to McConnell, the expectation for Fannie Mae interest only securities is that when interest rates rise, prepayments will decrease. McConnell, June 8, 2004, Tr. at 69. Thus, Keystone's residuals did not move in the same direction as the Fannie Mae securities. McConnell, June 8, 2004, Tr. at 69. 147. Based on the foregoing, the court finds that the value of the Keystone residuals did not increase from April 19, 1999 to September 1, 1999. XII. Gary Ellis' Damages 148. As a result of the ensuing tumult, including the criminal investigation and ultimate conviction of several longtime Keystone officials, Ellis tried, but was unable to obtain, similar employment in the banking industry. G. Ellis, May 21, 2004, Tr. at 154-66; G. Ellis, May 22, 2004, Tr. at 5-7. 149. When Gary Ellis was employed at United his average compensation package was worth $319,000 per year. L. Ellis, May 26, 2004, Tr. at 16. The typical or normal retirement age in the banking industry for Gary Ellis would allow him to *705 retire on June 30, 2007. L. Ellis, May 26, 2004, Tr. at 22. The value of Gary Ellis' total compensation package at Keystone was approximately $460,000 per year. L. Ellis, May 26, 2004, Tr. at 16, 21. 150. The cumulative present value of Gary Ellis' loss of compensation as of May 26, 2004, was $2,015,181. L. Ellis, May 26, 2004, Tr. at 25. With adjustments for social security and pension, the total amount of Gary Ellis' loss, as of May 26, 2004, was $2,419,233. L. Ellis, May 26, 2004, Tr. at 30; Ellis Exs. 56, 57. 151. Gary Ellis has remained employable and able to work and has, since October of 2000, been employed by West Virginia State University. L. Ellis, May 26, 2004, Tr. at 32-33; G. Ellis, May 21, 2004, Tr. at 156-57, 160, 164. 152. The evidence failed to establish that Ellis' health impaired his ability to obtain a position in the banking industry. L. Ellis, May 26, 2004, Tr. at 32. 153. From 1999 until the date of trial, there were recurring openings for bank executives in West Virginia at the presidential and vice-presidential level. L. Ellis, May 26, 2004, Tr. at 40-41, 49; Blair, June 4, 2004, Tr. at 209-12. 154. After the failure of Keystone, Ellis made an extensive job search seeking a position in banking. He talked to at least two dozen people, but was unable to obtain a job in banking. G. Ellis, May 21, 2004, Tr. at 155-66; G. Ellis, May 22, 2004, Tr. at 5-7. He concluded the taint of being associated with the collapse of Keystone made it impossible for him to obtain a banking position. G. Ellis, May 21, 2004, Tr. at 162-63. 155. Based on the facts that Ellis was employable, desirous of working, and had an excellent reputation in banking prior to the Keystone collapse, and that positions in banking were available during the period of his search, the court concludes that Ellis' association with Keystone tainted his reputation to the extent that he could not continue his career in banking. 156. In October 2000, Ellis accepted a position at West Virginia State University. His salary there was about $48,000 per year; it has increased since then to roughly $52,000. G. Ellis, May 21, 2004, Tr. at 156-57. 157. Ellis' two-year, rolling contract with Keystone was worth approximately $460,000 per year; he received $140,625 from Keystone before it collapsed. L. Ellis, May 26, 2004, Tr. at 16, 21. 158. In order to serve as Keystone Bank's president, Ellis brought $49,500 of Keystone stock which is now worthless. G. Ellis, May 22, 2004, Tr. at 35-36; L. Ellis, May 26, 2004, Tr. at 30. 159. As a result of accepting the position of president of Keystone, Ellis lost a career in banking. The present value of his loss of overall compensation and other damages is $2,419,233, including the loss of the Keystone stock's value. L. Ellis, May 26, 2004, Tr. at 15-29; Ellis Exs. 56-58. This amount is calculated conservatively,FN3 based on his income at United, through an anticipated retirement in June of 2007, and reduced for the mitigating effects of his present employment.
XIII. Grant Thornton's Alleged Negligence With Respect to the Agreed-Upon-Procedures Work 160. The FDIC's claim that Grant Thornton should have discovered Keystone's misrepresentation of its loan portfolio by October 31, 1998, is based entirely upon Grant Thornton's undertaking to perform*706 certain “agreed-upon-procedures” for Keystone. The FDIC's theory of liability with respect to the agreed-upon-procedures work is tied solely to alleged deficiencies in one of seven procedures-the “scanning” of general ledger accounts-outlined in the engagement letter between Grant Thornton and Keystone and on remarks by Stan Quay about the general ledger just prior to the October 29, 1998 meeting of the Keystone board of directors. 161. Although Keystone was required to retain new auditors pursuant to the terms of the Formal Agreement with the OCC, Grant Thornton had no role in the negotiation of that Agreement and was not a party to it. Carmichael, May 25, 2004, Tr. at 88-89, 97-98. Instead, Grant Thornton negotiated and entered into two contracts with the Bank to provide services. Buenger, June 1, 2004, Tr. at 132-33; Quay, June 3, 2004, Tr. at 28. These contracts were the audit engagement letter and the agreed-upon procedures engagement letter. FDIC Exs. 98, 101. 162. Keystone and Grant Thornton engaged in extended discussions in an effort to reach agreement on the terms of an agreed-upon-procedures engagement letter. They exchanged a number of drafts and did not finalize the agreement until October 22, 1998. Quay, June 3, 2004, Tr. at 29; Carmichael, May 25, 2004, Tr. at 86-87; FDIC Ex. 101. 163. The parties agree that the OCC had the right to approve the terms of the agreed-upon-procedures engagement letter. The evidence was undisputed at trial that, for several months after October 1998, the OCC withheld its approval and discussed with Quay modifications it wanted in the letter. Quay, June 3, 2004, Tr. at 29; Carmichael, May 25, 2004, Tr. at 99. Furthermore, the evidence shows that the OCC also withheld approval of the October 22, 1998 engagement letter. GT Ex. 159, Schneck Depo, September 19, 2002, 111-12, 131-32 (GT Ex. 741). Final OCC approval on the terms of the engagement letter was not received until August 11, 1999, three weeks before the Bank closed, at a meeting between Quay and Ron Schneck of the OCC. Quay, June 3, 2004, Tr. at 101; Schneck Depo, September 19, 2002, 111-12, 131-32 (GT Ex. 741). The October engagement letter between Grant Thornton and the Bank, as well as the letter agreed to by the OCC the following August, contemplated that Grant Thornton would provide a written report setting forth the results of its agreed-upon procedures work. FDIC Ex. 101. The letter specifically provided that Grant Thornton could withhold its report if “unexpected circumstances” arose. FDIC Ex. 101. Both the FDIC's and Grant Thornton's liability experts agreed at trial that it was reasonable for Grant Thornton not to issue any report until the OCC signed off on the terms of the engagement letter. Carmichael, May 25, 2004, Tr. at 99; Goldman, June 8, 2004, Tr. at 217-18. No written report on Grant Thornton's agreed-upon-procedures work was ever completed or issued. Quay, June 3, 2004, Tr. at 166. 164. When Grant Thornton first began performing the agreed-upon-procedures, it did not undertake to do any scanning-and no scanning was done. The scanning procedure did not become part of the engagement letter until October 19, 1998. Quay, June 3, 2004, Tr. at 29-30. When the scanning provision was inserted into the engagement letter-on October 19, 1998-scanning was not required to be completed until March 31, 1999. Buenger, June 1, 2004, Tr. at 140; FDIC Ex. 101. 165. Based on the foregoing, the court concludes that Grant Thornton had no contractual duty to perform scanning prior to October 31, 1998, and has no factual basis on which to find that, if Grant Thornton *707 had begun scanning work in August or September of 1998-which it was not required and did not undertake to do-it would have uncovered the fraud by October 31, 1998. CONCLUSIONS OF LAW I. Jurisdiction and Venue Except as otherwise provided by act of Congress, the district courts have original jurisdiction of all civil actions commenced by the United States or by any agency thereof. 28 U.S.C. § 1345. Under 12 U.S.C. § 1819(b)(1), the FDIC is an agency of the United States for purposes of 28 U.S.C. § 1345. Therefore, this court has jurisdiction over the consolidated civil action as filed by the FDIC, receiver for Keystone. This court has supplemental jurisdiction over the claim of plaintiff Gary Ellis under 28 U.S.C. § 1367, because it is so related to the claims of the FDIC that it forms part of the same cause or controversy under Article III of the United States Constitution. United States v. Mfrs. Hanover Trust Co., 231 F.Supp. 160 (S.D.N.Y.1964). Ellis' claim was originally asserted as a cross-claim against Grant Thornton and arises from a common nucleus of facts with the claims of the FDIC. Venue is proper in this district under 28 U.S.C. § 1391 because a substantial part of the events or omissions giving rise to plaintiffs' claims occurred in the Southern District of West Virginia. II. Law Applied [1] Where the FDIC is a party in its capacity as receiver and litigation involves the rights of creditors, depositors and stockholders, the substantive law of the state where the cause of action arose is applicable except where some provision of the Financial Institution Reform, Recovery and Enforcement Act (FIRREA) provides otherwise. O'Melveny & Myers v. FDIC., 512 U.S. 79, 84-85, 114 S.Ct. 2048, 129 L.Ed.2d 67 (1994); Resolution Trust Corp. v. Fid. and Deposit Co. of Md., 205 F.3d 615, 626 (3d Cir.2000); Am. Nat'l Bank of Jacksonville v. FDIC, 710 F.2d 1528, 1534 (11th Cir.1983). Therefore, the court has looked to the substantive law of West Virginia in assessing the rights and liabilities of the parties to this consolidated civil action. Absent special circumstances, federal district courts must decide questions involving the application of state law even if they are extremely difficult to resolve. Colorado River Water Conservation Dist. v. United States, 424 U.S. 800, 813-18, 96 S.Ct. 1236, 47 L.Ed.2d 483 (1976); Meredith v. Winter Haven, 320 U.S. 228, 234, 64 S.Ct. 7, 88 L.Ed. 9 (1943); Wohl v. Keene, 476 F.2d 171, 174-75 (4th Cir.1973). When state law is unsettled, the federal court must attempt to predict how the state's highest court would rule if confronted with the issue. Commissioner of Internal Revenue v. Estate of Bosch, 387 U.S. 456, 465, 87 S.Ct. 1776, 18 L.Ed.2d 886 (1967); Food Lion, Inc. v. Capital Cities/ABC Inc., 194 F.3d 505, 512 (4th Cir.1999); Sanderson v. Rice, 777 F.2d 902, 905 (4th Cir.1985); Hatfield v. Palles, 537 F.2d 1245, 1248 (4th Cir.1976). In the absence of direct authority, the federal court may look to state high court decisions in related or analogous cases for an indication of how the state's highest court is likely to rule. Perez-Trujillo v. Volvo Car Corp. (Sweden), 137 F.3d 50, 55 (1st Cir.1998). In absence of other authority, federal courts may follow the considered dicta of the state's highest court. Anderson v. Nissan Motor Co., Ltd., 139 F.3d 599, 601 (8th Cir.1998); State Farm Fire & Cas. Co. v. Fullerton, 118 F.3d 374, 378 (5th Cir.1997); McKenna v. Ortho Pharm. Corp., 622 F.2d 657, 662-63 (3d Cir.1980). Additionally, a federal court may examine cases from other jurisdictions*708 to determine what law the controlling state would adopt. Ross v. Creighton Univ., 957 F.2d 410, 414-15 (7th Cir.1992); Teletronics Int'l, Inc. v. CNA Ins. Co./Trans. Ins. Co., 120 Fed.Appx. 440, 444-45 (4th Cir.2005) (unpublished). “In determining state law, a federal tribunal should be careful to avoid the danger of giving a state court decision a more binding effect than would a court of that state under similar circumstances. Rather, relevant state precedents must be scrutinized with an eye toward the broad policies that informed those adjudications, and to the doctrinal trends which they evince.” McKenna, 622 F.2d at 662. Where the issues in this case are somewhat unsettled under West Virginia law, the parties have offered the law of other jurisdictions in an effort to support their respective positions. In making its Conclusions of Law herein, the court has relied on only those cases which it feels are reflective of the way the West Virginia Supreme Court of Appeals would decide the issue. III. Accounting Malpractice [2] In order to recover on a claim of professional malpractice, the plaintiff must show: (1) the existence of a legal duty owed by the defendant to the plaintiff, (2) a breach of that duty, and (3) damages proximately caused by the breach. See Sewell v. Gregory, 179 W.Va. 585, 371 S.E.2d 82, 84 (1988). In the case of a client suing a retained professional for negligence, the existence of a duty is established by virtue of the client hiring the professional. See Calvert v. Scharf, 217 W.Va. 684, 619 S.E.2d 197, 203 (2005); McGuire v. Fitzsimmons, 197 W.Va. 132, 475 S.E.2d 132, 136-37 (1996). The standard of care applicable to an accountant's preparation of a report depends upon generally accepted accounting practices. First Nat'l Bank of Bluefield v. Crawford, 182 W.Va. 107, 386 S.E.2d 310, 313 (1989); see also United States v. Arthur Young & Co., 465 U.S. 805, 811, 104 S.Ct. 1495, 79 L.Ed.2d 826 (1984) (“By examining the corporation's books and records, the independent auditor determines whether the financial reports of the corporation have been prepared in accordance with generally accepted accounting principles.”). [3] An accountant who undertakes to perform professional services for a client is required to exercise the knowledge, skill, and ability ordinarily possessed and exercised by members of the profession in similar circumstances. Keister v. Talbott, 182 W.Va. 745, 391 S.E.2d 895, 898 (1990); Weaver v. Union Carbide Corp., 180 W.Va. 556, 378 S.E.2d 105, 107 (1989). “An auditor who undertakes to examine the books and audit the accounts of a client does not guarantee the correctness of the accounts. He does undertake to use skill and due professional care and to exercise good faith and to observe generally accepted auditing standards and professional guidelines, with the appropriate reasonable, honest judgment that a reasonably skillful and prudent auditor would use under the same or similar circumstances.” Mishkin v. Peat, Marwick, Mitchell & Co., 744 F.Supp. 531, 538 (S.D.N.Y.1990). Compliance with Generally Accepted Accounting Standards (GAAS) and Generally Accepted Accounting Practices (GAAP) is strong evidence that an auditor has conducted himself with due professional care. However, such compliance is not dispositive and does not end the inquiry. Keister, 391 S.E.2d at 898; see also Kemin Indus., Inc. v. KPMG Peat Marwick, LLP, 578 N.W.2d 212, 217 (Iowa 1998); Maduff Mortgage Corp. v. Deloitte, Haskins & Sells, 98 Or.App. 497, 779 P.2d 1083, 1086 (Or.Ct.App.1989). *709 [4] By Order dated May 1 |
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