SFO launches criminal investigation into Quindell Plc

The Serious Fraud Office (SFO) has recently announced that its director has opened a criminal investigation into “business and accounting practices” at insurance technology and claims management group Quindell Plc.

The Initial Investigation

The announcement follows an initial investigation by the Financial Conduct Authority (FCA) for alleged accounting irregularities. The FCA investigation focused on public statements that Quindell made about its accounts in 2013 and 2014. During the investigation, trading in the company’s shares was temporarily suspended on the Alternative Investment Market.

Quindell has admitted that some of its accounting polices were “aggressive”. The group has been conducting its own review, advised by accountancy firm PricewaterhouseCoopers (PwC).

The review concluded that accounting policies relating to revenue and acquisition costs in some of its businesses (since disposed of) were “at the aggressive end of acceptable practice”. PwC also concluded that some other policies were “not appropriate”.

Investors saw more than 80% wiped off the value of their shares in a disastrous 2014, as rumours of the accounting irregularities surfaced.

The Current Investigation

Following consultation with the SFO, the FCA decided to discontinue its own investigation with immediate effect. In a statement, Quindell said it would “continue to co-operate with all relevant regulatory and law enforcement authorities”; saying the SFO had informed it of the investigation it intended to carry out. Whilst the FCA may bring criminal proceedings in its own name, this tends to be for particular offences relating to financial regulation. The FCA often hands over to the SFO to prosecute where there are more general serious fraud offences, so the change of prosecuting authority may be an indication of the seriousness of the intended charges.

Meanwhile, there is a separate investigation by the Financial Reporting Council (FRC) into two accountancy firms which prepared, approved and audited Quindell’s financial statements for the calendar years 2011, 2012 and 2013, and the interim results for the half-year ending 30 June 2014. A spokeswoman for the FRC said that once the investigation was concluded, any misconduct allegations would be handled by a disciplinary tribunal, which has the power to impose unlimited fines and costs and suspend accountants from membership of their professional bodies.

What lessons should be taken from this?

Accounting is certainly not an exact science; however inaccurate accounts can have serious civil and criminal repercussions. Misleading accounts invite shareholders and investors to bring legal action for losses suffered as a result, as well as allowing regulatory and criminal bodies to launch investigations and impose criminal sanctions.

The Quindell affair, which is now being investigated on both criminal (SFO) and regulatory (FRC) fronts, is a good example of the increasing cross-over between civil/regulatory matters and criminal prosecutions in the world of corporate fraud. At Simons Muirhead & Burton we defend directors and corporates involved in multi-faceted investigations and court proceedings within one unique department, offering an efficient, cost effective defence and total client support.

If you wish to discuss anything in this article or any specific needs your organisation may have please do not hesitate to contact Pamela Reddy.