October 28, 2021

This Is Not Good, KPMG. Not Good At All.

Here’s some less-than-stellar news about the Queen’s KPMG from today’s Financial Times:

KPMG faces a record fine of more than £15m after advising bed manufacturer Silentnight on the sale of its business despite the accountant’s “conflict of interest” with the buyout fund that bought it.

An independent tribunal found that KPMG and one of its partners failed to comply with the fundamental principles of objectivity and integrity in their work on the sale of Silentnight to US private equity firm HIG Capital in 2011, a hearing was told on Monday.

The findings followed a case in which the Financial Reporting Council, the UK audit regulator, argued that KPMG had helped HIG force the insolvency of UK-listed Silentnight so it could acquire the company without the burden of its £100m pension scheme.

The FRC is alleging that KPMG and now-former KPMG restructuring partner David Costley-Wood were “seriously conflicted” when they arranged the sale of Silentnight to buyout fund HIG Capital.

FT reported last November:

[The FRC] claimed KPMG had courted HIG as a client for about nine months before it was appointed as administrator to Silentnight, meaning it had an “interest in pleasing HIG”. This presented a conflict with its duties to the company’s creditors and shareholders.

KPMG then “assisted” HIG in its plan to force a liquidity crisis at Silentnight by acquiring and then calling in some of its debt, the FRC claimed. This allowed HIG to purchase the business out of insolvency while its £100m pension liabilities were transferred to the UK’s pensions lifeboat, the Pension Protection Fund.

David Costley-Wood

FT reported today that the FRC recommended the tribunal fine KPMG £15 million plus an additional amount for “aggravating factors,” which would be the largest financial penalty ever levied against a Big 4 firm in the U.K. That prestigious honor is currently held by Deloitte, which was fined £15 million on Sept. 17, 2020, for its shoddy auditing of Autonomy, the U.K.-based software company that was acquired by Hewlett-Packard in 2011 and was involved in an epic accounting fraud.

The FRC also thinks Costley-Wood should have to pay a penalty of £500,000 or more and be banned from the profession for 15 years. His lawyers argued for a fine of half that amount and a 10-year exclusion from the profession, FT reported.

KPMG and Costley-Wood had agreed to pay costs of about £2.5 million, but that didn’t include the tribunal’s own costs.

During a FRC disciplinary tribunal hearing on Nov. 24, 2020, Costley-Wood called the FRC’s case against him a “witch hunt” and said the U.K. audit cops are “trying to trash my name in the press.”

Law360 reported last November:

Costley-Wood accused the Financial Reporting Council of trying to discredit a meeting from August 2010 — with Silentnight, HIG Capital and prospective administrators, in which he tried to prevent the bedding company from entering into administration — by making fresh allegations of dishonesty against him during his cross-examination.

The FRC alleged on Monday that Costley-Wood had allowed the pensions regulator to believe that a “fake” note recording the meeting was created at the time, when it was in fact created 13 months later in response to a request for information from the watchdog.

Costley-Wood said he attended the meeting with the “sole intention” of persuading HIG not to put Silentnight into administration. He said he was facing opposition from a prospective administrator, who wanted to put the company into insolvency for the administration fee.

“What I really don’t understand is there is an insolvency practitioner at this meeting trying to persuade HIG to put it into administration, and I come along and try to persuade HIG not to — yet I am the person being accused of misconduct,” Costley-Wood said.

It just so happened that Costley-Wood conveniently “retired” from KPMG on June 4, a “retirement” he had planned a while ago, a KPMG spokesperson told Financial News. Costley-Wood told FN that any “insinuation that my exit has anything to do with Silentnight is 100% wrong.”

KPMG faces record fine over ‘conflict of interest’ on Silentnight sale [Financial Times]
KPMG partner exits firm amid tribunal over Silentnight private equity takeover [Financial News]

Related articles:

KPMG U.K. Restructuring Partner Channels Angry Donald Trump During Disciplinary Hearing
Congrats to Deloitte U.K. for Getting the Largest Fine Ever Handed Out by the Financial Reporting Council

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