PwC faces pounds 400m lawsuit over Maxwell audit failure
Wednesday 03 February 1999
Observers believe lawyers preparing the negligence claim against the firm will feel their case is strengthened by the report from the accountants' Joint Disciplinary Tribunal that found that Coopers & Lybrand, now part of PwC, and four of its partners failed to meet the required professional standards in auditing various parts of the Maxwell empire.
The claim is being brought by Grant Thornton, which took over from Price Waterhouse as administrators of Maxwell Communication Corporation in 1997 after PW announced it was merging with Coopers. Although Coopers' role at MCC was not covered by the Joint Disciplinary Scheme investigation, it is believed that the report's description of the firm's method of operation could help build a picture of how it worked in other parts of the business group controlled by the late Robert Maxwell.
The case is not due to reach court until 2002, but it could possibly be settled out of court before then. Last year, Coopers' merger partner, PW, and Ernst & Young settled the $11bn claim launched against them in 1991 by liquidators to the collapsed Bank of Credit and Commerce International for just $125m.
The report brings to an end a five-year investigation into one of Britain's most serious financial scandals. It concentrated on Mr Maxwell's private companies and publicly-quoted Mirror Group Newspapers.
Coopers points out that it has not been alleged that the firm caused direct financial loss or caused or facilitated the collapse of the Maxwell empire by its omissions. But the disciplinary tribunal - Roger Henderson QC, who acted as chairman, Ian McNeil, former partner at Moores Rowland and past president of the Institute of Chartered Accountants; and John Platt, a retired executive with venture capitalists 3i - found that a lack of objectivity in dealing with Mr Maxwell and his companies lay at the heart of many of the 35 complaints laid against the firm and the four partners.
"The complaints reveal shortcomings in both vigilance and diligence and a failure to achieve an appropriate degree of objectivity and scepticism, which might have led to an earlier recognition and exposure of the reality of what was occurring," it said. It added: "The firm lost the plot."
In addition to ordering PwC and four of its partners to pay fines and costs totalling nearly pounds 3.5m, the tribunal censured the firm and one partner, John Steven Cowling.
Two of the other three partners - Stephen Richard Wootten and Nicholas Paul Richard Parker - were admonished. The fourth, Ian Robert Steere, was ordered to pay a share of the costs.
Peter Smith, senior partner of PwC, said in a statement that the firm "fell short of the very high standards we set ourselves". Adding that this was "a matter of deep regret", he pointed out that the Joint Disciplinary Tribunal report made clear that the auditors were the "victims of deliberate deceit".
Peter Hazell, the firm's managing partner, said the affair was "a source of embarrassment for us", but added that he and his colleagues would be seeking to persuade clients to stick with the firm by pointing to the major changes made to the way in which they carry out audits.
Coopers and the Maxwell affair
n July 1971 - Government report describes Maxwell as "a person who cannot be relied upon to exercise proper stewardship of a publicly- quoted company".
n 1972 on - Coopers & Lybrand appointed auditors of nearly all Maxwell- controlled companies and their pension funds at that time and as they later came into existence.
n 5 November 1991 - Robert Maxwell falls off yacht , sparking the collapse of the his media empire and the discovery of massive frauds. In particular, a pounds 400m "black hole" was revealed in the Maxwell company pension funds.
n Early 1993 - Accountants' Joint Disciplinary Scheme (JDS) begins investigation of role of Coopers & Lybrand as auditors of Maxwell empire.
n 1994 - Coopers attempts to halt inquiry pending lawsuit by administrators of Maxwell Communication Corporation (MCC).
n February 1995 - JDS investigation resumes.
n 14 November 1997 - JDS disciplines former Maxwell executives, Michael Stoney and Jonathan Ford.
n Late 1997 - Grant Thornton takes over from Price Waterhouse as administrator of MCC responsible for dealing with negligence action against Coopers as a result of conflict arising from announcement of merger between PW and Coopers. The claim is likely to total about pounds 400m and is not due to come to court until 2002.
n 27 April 1998 - 35 complaints laid against Coopers and 24 against four individual partners - John Steven Cowling, Ian Robert Steere, Stephen Richard Wootten and Nicholas Paul Richard Parker - in relation to Mirror Group Newspapers and other Maxwell companies in the period 1988 to 1991.
n October 1998 - Joint Disciplinary Tribunal chaired by Roger Henderson QC and accompanied by Ian McNeil, a retired partner in Moores Rowland and past president of the Institute of Chartered Accountants, and John Platt, a retired head of 3i, considers complaints.
n January 1999 - Coopers informed of tribunal's findings and given one month to appeal.
n 2 February 1999 - Report published showing Coopers and the four partners ordered to pay a total of nearly pounds 3.5m in fines and costs. The firm and Mr Cowling are censured, while Mr Wootten and Mr Parker are admonished.
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