Risk Update

Private Equity, Public Conflict — KPMG Faces Fine

Posted Dan Bressler

“KPMG faces record fine over ‘conflict of interest’ on Silentnight sale” —

  • “KPMG UK faces record fines of over £ 15 million after advising bed maker Silent Night to sell its business, despite a “conflict of interest” with the buyout fund where the accountant bought it.”
  • “The significance of the findings against KPMG and its partner, David Costley-Wood, who advised Silentnight to sell, ‘sits at the top,’ although the referee can do, Richard Coleman QC of the FRC told the hearing. The referee’s decision was not published, but a draft of its key findings was read aloud by Coleman.”
  • “According to Coleman, Costly Wood and KPMG weren’t considering whether their objectivity was threatened or if the interests of HIG and Silent Night could be in conflict. It turns out that the motivating factor for cheating is the ‘desire to maintain HIGH’ as a potential client.”
  • “The referee also fraudulently made Costley-Wood provide false or substantially incomplete statements to Silentnight, pension trustees, pension protection funds, and pension regulators regarding the causes of Silentnight’s financial difficulties. By supporting the pension, we found that it showed a lack of objectivity. Said.”
  • “KPMG was paid around £ 1.6m for its Silent Night Engagement initiative, but hearings said it has received more than £ 8.5m from companies invested by HIG and the fund since 2010. HIG continues to be interested in Silentnight, which reported a pre-tax loss of £ 888,000 from £ 133.9m in sales for the year to February 2020.”
  • “KPMG resisted the FRC’s request to conduct a review of the causes of Silent Night’s illegal activity and order the company to carry out a corrective review of current procedures… In a statement, KPMG UK said: ‘The referee’s draft findings relate to restructuring work carried out over a decade ago. At the right time, we will consider these findings and options for possible appeal.'”

“KPMG faces call for record fine from British accounting watchdog” —

  • “Britain’s accounting watchdog called for KPMG’s UK arm to be fined more than 15 million pounds ($21 million) on Monday over a ‘conflict of interest’ when it advised on the sale of bed maker Silentnight.”
  • “‘The tribunal’s findings that the respondents lost their objectivity and dishonestly advanced, or associated themselves with, misleading statements are particularly serious and unusual,’ the Financial Reporting Council’s (FRC) executive counsel said at the hearing.”
  • “‘If the respondents had properly addressed and dealt with threats to their objectivity, including the conflict of interest, they would not have been able to advise and assist both HIG and Silentnight,’ the FRC said.”
  • “KPMG said the tribunal’s findings related to restructuring work performed over a decade ago and the fine being sought was ‘overly punitive’ and ‘disportionate.'”

“KPMG Faces $21 Million Fine for H.I.G. Capital Conflict” —

  • “The U.K.’s audit regulator said the conflict with H.I.G. Capital LLC was “obvious” in documents prepared for a sanctions hearing Monday. The Financial Reporting Council said that KPMG “lost their objectivity and dishonestly advanced, or associated themselves with, misleading statements,” with misrepresentations repeated on eight separate occasions.”
  • “The tribunal’s executive counsel also recommended that David Costly-Wood, an ex-KPMG partner who worked on the sale, face a personal fine of at least 500,000 pounds and be stripped of his membership of the Institute of Chartered Accountants in England and Wales for 15 years.”