Colonial Bank owner files suit against auditors

* Charges PwC, Crowe Horwath w/ negligence, malpractice

* Says their audits concealed fraud that led to Ch. 11

NEW YORK Aug 25 (Reuters) - Colonial Bancgroup Inc (CBCDQ.PK) and its trustee filed a lawsuit against former auditors PricewaterhouseCoopers LLC and Crowe Horwath LLP, charging them with accounting malpractice and professional negligence for not catching a fraud that led to the bank's collapse.

The complaint was filed late on Wednesday in a Circuit Court in Montgomery County, Alabama.

It also accuses the auditors of breach of contract, saying that PwC's independent audits of its financial statements violated generally accepted accounting standards and served to conceal the seven-year fraud that drained it of $1.8 billion and left it with hundreds of millions of dollars in worthless or nonexistent assets on its balance sheet.

Officials for PwC and Crowe Horwath could not immediately be reached for comment.

"PwC's and Crowe's representations and reports to BancGroup's audit committee were reckless and grossly inaccurate with regard to BancGroup's true financial condition and defendants' compliance with professional standards," said the Alabama-based bank in its complaint.

"Had PwC and Crowe properly discharged their professional duties, the ongoing fraud and the hole in BancGroup's balance sheet ... would have been detected by no later than fiscal year-end 2007," the complaint said.

As it turned out, Bancorp said it did not find out about the fraud being committed in its Orlando, Florida-based mortgage warehouse lending division until a raid by federal authorities on Aug. 3, 2009.

The bank was forced to close on Aug. 14, 2009, and voluntarily filed for Chapter 11 bankruptcy protection in Montgomery, Alabama on Aug. 25, 2009.

Its bankruptcy plan was confirmed in June 2011, the same month that Catherine Kissick, former head of the mortgage warehouse lending division, was sentenced to eight years in federal prison after pleading guilty to one count of conspiracy to commit bank, securities and wire fraud.

Lee Farkas, former chairman of Taylor, Bean & Whitaker Mortgage Corp, and the fraud's mastermind, was later convicted on 14 counts of conspiracy, bank, securities and wire fraud and sentenced to 30 years. (Reporting by Martinne Geller, editing by Bernard Orr)