The U.K.’s accounting watchdog Thursday ordered KPMG to pay a £13 million (U.S. $18 million) fine for “breaches of the principles of integrity and objectivity” in its advisory role regarding the 2011 sale of mattress company Silentnight to U.S. private equity firm HIG Capital. A former KPMG partner was also sanctioned.
The Financial Reporting Council (FRC) announced it had “severely reprimanded” KPMG and ordered the Big Four firm to appoint an independent reviewer to determine the root cause of its alleged failings. In addition, KPMG will pay £2.45 million (U.S. $3.4 million) toward investigation costs and £305,814 (U.S. $426,000) for the cost of an independent disciplinary tribunal.
The tribunal in June reached its ruling following a four-week hearing last year.
The penalty relates to the alleged actions of David Costley-Wood, the former head of KPMG Manchester Restructuring. Costley-Wood served as an advisor to both HIG and Silentnight while the former sought to acquire the latter. He was found to have taken part in a strategy “to drive Silentnight into an insolvency process” to the benefit of HIG while negatively impacting members of Silentnight’s pension scheme.
KPMG is legally liable for the conduct of Costley-Wood, the FRC noted.
While the tribunal’s report is not yet published, certain details were announced by the FRC. For example, the tribunal found KPMG’s involvement with Silentnight to be “deeply troubling, as KPMG failed to act solely in its client’s interests, acted in fundamental respects contrary to those interests and in those of a party whose interests were diametrically opposed to those of Silentnight.”
The independent reviewer KPMG must appoint is tasked with determining why threats to objectivity regarding KPMG’s relationship with Silentnight were not appropriately identified and whether similar weaknesses existed prior to the period of the alleged Silentnight misconduct. The reviewer will also assess various policies, procedures, and training programs relating to KPMG’s advisory services practices in light of the findings.
“The scale and range of the sanctions imposed by the tribunal mark the gravity of the misconduct in this matter,” said FRC Executive Counsel Elizabeth Barrett. “The decision serves as an important reminder of the need for all members of the profession to act with integrity and objectivity and of the serious consequences when they fail to do so.”
KPMG did not respond to a request for comment.
Costley-Wood was “severely reprimanded” and fined £500,000 (U.S. $697,000) for his role. His punishment includes exclusion from membership of the Institute of Chartered Accountants in England and Wales (ICAEW) for 13 years and precludes him from holding an insolvency license for the same period.
“Costley-Wood was conscious of the importance of the potential relationship of HIG to KPMG throughout,” the FRC added. “The respondents’ loss of objectivity underlay or drove much of what they did in relation to Silentnight throughout the relevant period, including assisting and advising HIG in its plan to acquire Silentnight free of the pension scheme liability from the summer of 2010.”