Deloitte hit with record-breaking £14m MG Rover fine

DELOITTE has been hit by a record-breaking £14m fine from the Financial Reporting Council’s independent tribunal for its work at MG Rover.

The previous biggest fine was £1.4m, handed out to PwC for its JP Morgan audit work in January 2012.

Deloitte is the first firm to be fined under the new sanctions guidance, which can ask tribunals to take into consideration one or various aspects of a firm – such as profitability of partners or firm, market share or revenue – when calculating fines.

The firm had lost the tribunal in July over its role in advising the owners of MG Rover. Deloitte and its corporate finance partner Maghsoud Einollahi were hauled in front of the Financial Reporting Council’s independent tribunal for its role in advising the owners of MG Rover in 2000 over two transactions.

Einollahi has been excluded from the profession for three years and fined £250,000. Deloitte, which Accountancy Age understands has already made a payment towards costs, will now pay a £14m fine.

The FRC had alleged Deloitte and Einollahi failed to adequately consider the public interest and mitigate risks of conflicts when they gave their advice. They have been found to have committed misconduct in their roles by the independent tribunal.

Paul George, executive director conduct at the FRC, said: “The final report of the tribunal provides a clear analysis of the case and how it reached its conclusions. It should be essential reading for all members of the profession.

“The sanctions imposed are in line with the FRC’s aim to ensure penalties are proportionate and have the necessary deterrent effect to prevent misconduct and bolster public and market confidence.”

Last year the FRC said it would change the way sanctions are calculated, which removed upper limits on financial penalties.

A Deloitte spokesperson said: “We remain disappointed with the outcome of the Tribunal and disagree with its main conclusions. As a firm we take our public interest obligations seriously in everything we do. We are disappointed that the efforts we and others made did not successfully secure the long term future of the MG Rover Group.

“The quality of our work, carried out more than ten years ago, has not been criticised, but the tribunal found against us on a number of points.

The firm warned that the decision could have “negative implications” for advisers, firms, and ICAEW members in business.

“Over the coming weeks, we will continue our discussions with relevant stakeholders and professional bodies about the potentially wide ranging impact on the profession and wider business community of the tribunal findings.”

BMW sold MG Rover Group in May 2000 to Techtronic for £10, with BMW also providing a £427m dowry, essentially a long-term interest-free loan, to Techtronic and paying £75m in lieu of providing warranties to the business. The Phoenix Four – John Towers, Nick Stephenson, John Edwards and Peter Beale – each owned and invested £60,000 in Techtronic.

The four made statements that their stewardship of the group would be for the public good. Phoenix Venture Holdings, the consortium formed by the four businessmen, later acquired all the shares of Techtronic which ultimately became the parent company of MG Rover Group.

MG Rover Group entered administration on 8 April 2005 with estimated losses of nearly £1bn and about 6,500 staff redundancies, however, during the start of the tribunal the FRC claimed this figure could be higher.

A copy of the tribunal report from the FRC can be found here.