KPMG has been accused of advancing an untruthful defence and failing to provide evidence to regulators investigating its misconduct in the sale of bedmaker Silentnight to a private equity fund.
The accounting firm was fined £13m in August and ordered to pay more than £2.75m in costs for its role in placing Silentnight into an insolvency process in 2011, which allowed HIG Capital to acquire it without the burden of its £100m pension scheme.
KPMG was found to have acted in the interests of HIG, which it was nurturing as a potential client, even though these were “diametrically opposed” to those of its client Silentnight.
The disciplinary tribunal’s full decision published on Wednesday found that KPMG and David Costley-Wood, the partner who led the Silentnight work, had failed to co-operate with the Financial Reporting Council’s investigation and that Costley-Wood had knowingly advanced an untruthful defence.
“KPMG and Mr Costley-Wood compounded their serious misconduct by advancing a defence to proceedings which was partly untruthful and by failing to co-operate with the investigation,” said Elizabeth Barrett, the FRC’s executive counsel.
KPMG’s non-co-operation included its failure to disclose an ad hoc retainer with Silentnight before it was formally engaged in January 2011, which the tribunal said may have delayed the FRC’s investigations into its potential conflict of interest.
The tribunal said it was “difficult to explain” KPMG’s failure to disclose to regulators that it had billed Silentnight £45,000 for work before the firm’s formal engagement and that it had “some difficulty” believing this had been overlooked inadvertently.
The intention of KPMG and Costley-Wood, who retired from the firm this year, may have been to “downplay” their level of contact with Silentnight in a period when Costley-Wood had provided advice to HIG.
The tribunal also found that Costley-Wood, who was paid more than £800,000 in each of his final two years at the firm, had advanced an “untruthful” defence that was “a construct invented by him to assist in his defence”.
The FRC said mounting an untruthful defence “seriously risks undermining the regulatory system [and] compounds the original failings”.
Jon Holt, KPMG’s UK chief executive, said the report made “difficult reading”.
“We accept the findings of the tribunal, and we regret that the professional standards we expect of our partners were not met in this case and that it has taken over a decade to reach this point,” he added.
KPMG, which no longer provides insolvency advice after selling the business to HIG this year, had improved its controls since the work was carried out, Holt said.
“We will reflect on the tribunal’s findings carefully and ensure that we learn lessons to reinforce our focus on building trust and delivering work of the highest quality,” he said.
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