E&Y island chief under investigation

Ernst & Young and the English ICA have come under fire following allegations that the senior partner of the firm’s Guernsey office ‘pursued personal interests in conflict with his duty to his clients’.

The criticism was made by a judge during a Guernsey appeal court hearing that ended last week. His comments follow a high profile legal case brought by a farming couple who alleged they lost their house and their savings after they followed advice from Stephen Harlow, the local E&Y senior partner, and a senior solicitor.

Judge Richard Southwell QC, who overturned a previous court judgment against the couple, recommended both Harlow and the lawyer, Roger Dadd, should be investigated without delay by their respective regulators.

The judge said Harlow had recommended the couple, Ruby and Bert Gaudion, to take out a series of loans using ‘shelf’ companies either operated or owned by E&Y and other unrelated companies.

A loan agreement was entered into with a Liberian registered company called Sigmet, which agreed to make an unsecured loan of £345,000 for a fixed period at a rate of 50% until repayment, said the judge. He went on to criticise Harlow for accepting a fee for giving a guarantee to Sigmet without instruction from Mr and Mrs Gaudion.

‘Serious questions arise as to Mr Harlow’s conduct in receiving the guarantee fee and allowing his personal interest to conflict with his duty to the Gaudions as his clients,’ said the judge.

Harlow, one of seven E&Y partners on the island, said after the judgment that he did not believe the judge’s criticisms were well founded.

Harlow told Accountancy Age neither he nor E&Y were allowed to respond to the allegations in the Court of Appeal. He added: ‘Because we were not able, in the context of these proceedings, to respond to the claims made by (the couple) we do not believe that any criticisms contained in the judgement were well founded’.

The judge also said his demand for a speedy investigation by the institute had already met opposition.

He urged the institute to carry out its investigation ‘with a greater degree of competence and effectiveness than appears to be shown by the correspondence from the (institute) placed before this court’.

The judge’s comments come at a bad time for E&Y, which is already under investigation by the Inland Revenue following allegations that it marketed fraudulent tax planning schemes via Guernsey.

After the judgment, Mr Gaudion said he was delighted he and his wife would be able to stay in the house that had been their home of 50 years.

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