KPMG was fined near record £ 13million and severely reprimanded by an independent tribunal for malpractice, in a long-running case relating to the sale of bedmaker Silentnight to a private equity group in 2011 .
The court found that one of KPMG’s partners helped push Silentnight, who was a client of the blue-chip accounting firm, into insolvency so that private equity group HIG could buy out the company from the administration and get rid of the costly pension plan set for Silentnight’s 1,200 employees. on taxpayers.
The taxpayer-backed Pension Protection Fund (PPF) is now calling for the proceeds of the fine to be used to make up any shortfall for Silentnight pensioners, who have been in limbo for a decade as sales inquiries have been completed.
KPMG’s sanction is close to the UK record for a fine imposed by the accounting and auditing regulator, the Financial Reporting Council (FRC), which ruled last year that Deloitte should pay £ 15million for the failures of its audit of software company Autonomy.
The FRC tribunal, which ordered KPMG to pay £ 2.8million in costs on top of the fine, found the firm and its former partner David Costley-Wood to be in conflict of interest as they acted for both HIG and Silentnight during the period in question. .
Costley-Wood, Manchester’s restructuring manager at the time, had misled the pension regulator and the PPF about what had caused financial problems for Silentnight to help HIG in its pursuit of the company.
The court ruled that he should be fined £ 500,000, severely reprimanded and banned from holding an insolvency license or being a member of the professional association of accountants for 13 years.
“The scale and breadth of the penalties imposed by the court speaks to the gravity of the misconduct in this case,” said Elizabeth Barrett, executive director of law enforcement at the FRC. “The ruling serves as an important reminder of the need for all members of the profession to act with integrity and objectivity and of the dire consequences when they fail to do so. “
KPMG has also been ordered to conduct an independent review to assess its policies, procedures and training programs, and to determine whether similar violations could be found in a sample of past cases.
The pension regulator, which originally referred the case to the FRC, said it was satisfied with the court’s decision. « Today’s announcement highlights the important role the audit, accounting and actuarial industry plays in protecting the interests of savers.
The sanction comes months after HIG – which is run by its founders Sami Mnaymneh and Tony Tamer – reached a £ 25million settlement with the pensions regulator over similar allegations that it deliberately pushed Silentnight to fail. not buy the company cheaply. The proceeds of this settlement went directly to the Silentnight pension plan.
The PPF, which runs pension schemes for staff of collapsed companies including Toys R Us and Austin Reed, want the latest £ 13million fine to go to the Silentnight scheme as well. However, the money is intended for the Institute of Chartered Accountants of England and Wales (ICAEW), which funds the investigations carried out by the FRC.
“The findings of the FRC tribunal clearly show the significant damage to the Silentnight pension plan, which is currently being evaluated by the PPF,” the PPF said in a statement. “We believe it is fair that the proceeds of the fines imposed by the FRC go to the Silentnight Pension Plan so that it can achieve the best possible result for its 1,200 members. “
The ICAEW said it had already received a request on behalf of the administrators of the Silentnight pension fund, but declined, saying it was entitled to receive proceeds in exchange for funding inquiries under the scheme’s rules. UK accountant.
Commenting on the ruling, KPMG said it recognizes the tribunal’s findings and regrets the standards were not met. Although it no longer provides insolvency services, KPMG said its “broader controls and processes have evolved significantly since this work was carried out over a decade ago.”
He added: “As a company, we are committed to the highest standards and continually invest in our people and procedures to ensure that potential conflicts of interest are identified and effectively managed. “
HIG declined to comment.