An independent disciplinary tribunal has imposed a fine of £13m (€15.3m) on KPMG LLP after finding it guilty of serious misconduct over its involvement in the sale of bed retailer Silentnight to a private equity group back in 2011, according to the Financial Reporting Council (FRC).

The tribunal also severely reprimanded the firm over the affair and ordered it to pay costs of more than £2.75m. In addition, the tribunal imposed a fine of £500,000 on partner David Costley-Wood, the former head of its Manchester restructuring unit.

It also severely reprimanded him and ordered him to be excluded from membership of his professional body, the Institute of Chartered Accountants of England and Wales, for 13 years.

The tribunal said KPMG’s involvement with Silentnight was “deeply troubling” and added it had “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 FRC alleges that the actions of both KPMG and Costley-Wood allowed HIG Group, a US private equity firm, to snap up Silentnight out of insolvency while £100m of pension liabilities were transferred to the Pension Protection Fund (PPF).

The tribunal said Costley-Wood had behaved “dishonestly” and that both he and his firm acted “with a lack of integrity” in matters that included “their dealings with the Pension Protection Fund and The Pensions Regulator”.

The FRC said in a statement that Costley-Wood had acknowledged he was under “an obligation to act transparently in relation to a regulator.”

The former KPMG audit partner has strongly denied claims that he behaved dishonestly and has accused the FRC of a “witch hunt” in pursuing its allegations against him.

UK lawmaker and long-standing audit critic Prem Sikka told IPE that tougher sanctions were called for.

“Regulators need more effective sanctions as fines have become just another business cost and have not encouraged the firm to improve its practices.

“The firm should be banned for five years from winning any new business.”

A spokesperson for TPR told IPE: “We are aware of the findings of the FRC disciplinary tribunal following our report to them of our concerns and the provision of evidence and we are pleased with the tribunal’s decision and agree with its comments about the conduct of KPMG and Mr Costley-Wood.

“Today’s announcement highlights the important role the audit, accountancy and actuary industry plays helping to safeguarding pension savers’ interests.” 

The spokesperson added that the watchdog would not hesitate to raise concerns over wrongdoing with the appropriate regulatory bodies and assist in any investigation alongside taking its own action.

The regulator eventually drew a line under the long-running affair when it secured a settlement of its claims against HIG Group and other linked parties earlier this year with no admission of liability.

KPMG told IPE: “As a firm, we are committed to the highest standards and continually invest in our people and procedures to ensure potential conflicts of interest are identified and managed effectively [and] we remain focused on building trust and delivering work of the highest quality.”

The firm added that Costley-Wood has since retired from the firm and noted that while it no-longer offers insolvency services, its “broader controls and processes have evolved significantly since this work was performed over a decade ago.”

The FRC said it would not be publishing the tribunal’s report at this time.

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