The judge’s ruling explored how THG’s aggressive business culture during this time contributed to fraud and said how attitudes within its finance department had “allowed fraud to flourish”.
News of the historic accounting problems comes just a day after THG confirmed its intention to float, in a move that could value the company at £ 4.5bn and raise it around £ 920m in new funds.
Founder Matthew Molding, who was managing director of THG in 2011 and is now executive chairman, is said to be in line to receive £ 700million if the company reaches a valuation of £ 7.25 billion by December 2022. He also insists on maintaining a “founder”. share ”to block unwanted take-over bids.
Court documents indicate that in May 2011, THG acquired the sports brand Myprotein from its founder Oliver Nobahar-Cookson for £ 58million, which consisted of £ 30million plus shares representing 12% of the company combined.
Cookson claimed he was led to believe the shares were worth £ 28million then and would be able to quickly sell them for a significant profit when the company floated in the fall of that year, according to judgment.
The documents show that a fraud inflating THG’s valuation was discovered in September by THG’s auditor, PwC. Judge Blair said: “I am convinced that the reason why the [flotation] was fraud and the discovery of losses hidden by fraud.
THG’s financial controller at the time, as well as another member of the accounting department were sacked, with Darren Rajanah, then CFO and now working in THG’s Ingenuity division, put on gardening leave before returning to work. ‘business.
Rajanah’s conduct was criticized in the judgment, including how “a bonus of £ 50,000 which had been awarded to Mr. Rajanah … was paid to [the fired financial controller’s] bank account to hide it from Mr. Rajanah’s wife, from whom he was going through a divorce.
The judge added: “I am convinced that [the sacked financial controller] was under pressure to produce figures that would be used in the acquisition [of Myprotein], and that although not personally fraudulent, Mr. Rajanah, as CFO and member of the board of directors, must take some responsibility for an atmosphere within the finance department that allowed the fraud to take place. prosper.
He concluded: “In my opinion, [the] the fraud must be attributed to THG. ”
It has not been suggested that Molding had prior knowledge of the fraud.
A THG spokesperson said: “This story [sic] case related to the actions of two young individuals in 2011. Simultaneous independent reviews and the court concluded that THG was not aware of their actions or of the system problem causing the inaccurate reports and [THG] took immediate corrective action upon discovery.
“At the time, the company was considering the possibility of quoting or raising funds privately and had not engaged any investor before identifying the error in the accounting system.
“A private placement was then completed in September 2011, in which the founder of Myprotein participated.”
In the same case, THG has successfully claimed £ 4.3million for its losses due to inaccuracies on Myprotein accounts.