£300m fraud confirmed. But where's the SFO?

The financial controller at the centre of an accounting scam at a British truck maker, which has cost up to £300m, has made a full confession, yet the Serious Fraud Squad has not been asked to investigate.

Stephen Ellis was the financial controller at ERF, the Swindon-based lorry maker which is now owned by the German automotive group Man. He has given Man a full statement detailing the accounting fiddles that have led to a massive, three-cornered legal action.

Man bought ERF from Western Star, a Canadian group, in January 2000. Western Star was subsequently sold to Freightliner, which is a subsidiary of the giant auto group DaimlerChrysler.

After Man bought ERF, it found that the UK group was suffering a liquidity crisis. Last year, Man sued Daimler-Chrysler, alleging that when ERF was sold it was an insolvent business, and that misrepresentations about the finances had cost Man £294m.

In turn, DaimlerChrysler has sued Ernst & Young, the accountancy firm which audited Western Star's books. Earlier this month the High Court threw out a motion by Ernst & Young to strike out the case and a trial is expected to take place in 2005.

Mr Ellis continued to work for Man after it bought ERF. However, when the financial problems were uncovered, he is understood to have made a full statement to the company.

"He explained what he did and how he did it," said a spokesman for Man. "The burden of the falsification is about £300m."

Although Mr Ellis was dismissed, he is understood to not be under investigation by the police nor is he facing any charges.

Man has not made any complaint to the UK police, and the Serious Fraud Squad says it has not been notified of any alleged fraud and is not investigating.

However, DaimlerChrysler is understood to have asked for an investigation and made a criminal complaint. It may ask the SFO why no investigation has taken place.

Ernst & Young is similarly bemused. "We are facing a legal action alleging fraud, yet there is no fraud investigation," said a senior source.

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