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By Tom Winnifrith, The Sheriff of AIM | Monday 11 June 2018
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.
For its 2013 financial year, the fraud Quindell (QPP) switched its auditors from RSM Tenon – already fined by the Financial Reporting Council as a direct result of my work – to KPMG. But unusually for a firm claiming to be so large it chose the small Southampton office headed up by Senior partner William Smith to check its books.
This was Smith’s biggest single account by a long way and the pressure not to lose it by asking tough questions must have been very real. Many of us were asking very real questions of Quindell at that time but Smith did not. Today, he and KPMG have paid a price ... of sorts. He has been fined £120,000 ( scaled back to £84,000 for agreeing to the settlement) and KPMG has been fined £4.5 million, scaled back to £3.15 million for the same reason. KPMG also has to pay costs of £146,000.
For KPMG this is peanuts. For Smith it will be a fraction of his takings as senior partner at the Southampton office. Both have been reprimanded but will KPMG sack Smith or demote him for what he did in enabling the UK’s biggest stockmarket fraud for 30 years? Of course not. As for KPMG, all the big 4 pick up reprimands for enabling fraud, life goes on.
So what did Smith & KPMG fail to do? They have “admitted that their conduct fell significantly short of the standards reasonably to be expected of a Member and a Member Firm and that they failed to act in accordance with the ICAEW's Fundamental Principle of Professional Competence and Due Care. The Misconduct related to two audit areas, and included failure to obtain reasonable assurance that the financial statements as a whole were free from material misstatement, failure to obtain sufficient appropriate audit evidence and failure to exercise sufficient professional scepticism. “
I should cocoa. The big two issues were revenue recognition in legal services. You will remember that Quindell was accruing profits on cases that were yet to settle at a rate which, for instance, implied a market share of almost 200% in Noise Induced Hearing Loss. Its projections in areas such as whiplash were not as ludicrous but were still shown to be aggressive. On this website we repeatedly demonstrated how ludicrous these assumptions were and thus that Quindell’s profits were bogus but Smith and KPMG just waived them through. If you pay KPMG enough it will clearly accept that a 200% market share is attainable.
The other area where Smith and KPMG failed according to the FRC is on A series of transactions relating to the sale and purchase of software licenses, related services and investments. The biggest of these transactions was the fraud I revealed as a panama pump involving Himex where Quindell invested in Himex, Himex then used that cash to book bogus sales for Quindell which contributed to its stated ( false ) sales and profits. That is a classic panama pump. Quindell then upped its stake at a much higher price so booking as a profit a revaluation of its original stake. More bogus profits for Himex was in essence a worthless fraud created by Rob Terry’s old mate Hassan Sadiq who had sold other worthless businesses – which had to be written off in full – to The Innovation Group, Rob terry’s v1 listed fraud.
Smith and KPMG also overlooked another major panama pump at Ingenie, a company whose brand ambassador was virtue signally jug eared hypocrite Gary Lineker, a man who made £5 million thanks to the Quindell fraud though he played no part in the actual fraud.
Again this website revealed all of this and indeed flagged it all up to the FRC which has publicly thanked me for my work in exposing the Quindell fraud - though natch folks like snot gobbler Dan McCrum at the FT and Paul Scott who are unthanked and made no submissions to regulators like to take the credit. Smith and KPMG just overlooked these clearly fraudulent transactions.
But with small fines and a reprimand which everyone will ignore Smith moves on keeping his very well paying job and KPMG will move on to its next client.
Quindell was the UK’s biggest stockmarket fraud for decades. It is individuals who undertake fraud and individuals who enable it through active connivance or passive negligence. To stamp out fraud folks need to realise that the consequences of such actions are truly dire. If KPMG wanted to change the culture of its organisation it would show it had a zero tolerance approach by firing Smith without compensation. Since it won’t the FRC should be acting on its behalf and giving Smith a life ban.
That none of this happens is why white collar fraud is such a low risk occupation in the UK today. And now, as you can see Will can get back to making money at KPMG ..he is reakllly into blockchain as you can see below.
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