PwC faces pounds 400m lawsuit over Maxwell audit failure

THE WORLD'S largest professional services firm, PricewaterhouseCoopers (PwC), faces the prospect of a pounds 400m lawsuit in the wake of yesterday's record punishment from the accountancy profession's watchdog over its role in the Maxwell affair.

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.

Start your day with The Independent, sign up for daily news emails
Life and Style
love + sex A new study has revealed the average size - but does that leave men outside the 'normal' range being thought of as 'abnormal'?
Arts and Entertainment
TV
Voices
The Palace of Westminster is falling down, according to John Bercow
voices..says Matthew Norman
Sport
Steve Bruce and Gus Poyet clash
football
News
Graham Norton said Irish broadcaster RTE’s decision to settle was ‘moronic’
TV
Arts and Entertainment
Jake and Dinos Chapman were motivated by revenge to make 'Bring me the Head of Franco Toselli! '
arts + ents Shapero Modern Gallery to show explicit Chapman Brothers film
Arts and Entertainment
Kurt Cobain performing for 'MTV Unplugged' in New York, shortly before his death
music Brett Morgen's 'Cobain: Montage of Heck' debunks many of the myths
ebooks
ebooksA special investigation by Andy McSmith
Life and Style
life
Sport
Brendan Rodgers
football The Liverpool manager will be the first option after Pep Guardiola
News
Amazon misled consumers about subscription fees, the ASA has ruled
news
Arts and Entertainment
Myanna Buring, Julian Rhind-Tutt and Russell Tovey in 'Banished'
TV Jimmy McGovern tackles 18th-century crime and punishment
Arts and Entertainment
Paul Whitehouse as Herbert
arts + ents
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Sales Executive - OTE £40,000

£15000 - £18000 per annum: Recruitment Genius: This is a great opportunity for...

Austen Lloyd: Law Costs HOD - Southampton

£50000 - £60000 per annum + Excellent Salary: Austen Lloyd: An outstanding new...

SThree: Recruitment Resourcer

£20000 - £21000 per annum + uncapped commission: SThree: As a graduate you are...

Ashdown Group: Junior Application Support Analyst - Fluent German Speaker

£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...

Day In a Page

Syrian conflict is the world's first 'climate change war', say scientists, but it won't be the last one

Climate change key in Syrian conflict

And it will trigger more war in future
How I outwitted the Gestapo

How I outwitted the Gestapo

My life as a Jew in wartime Berlin
The nation's favourite animal revealed

The nation's favourite animal revealed

Women like cuddly creatures whilst men like creepy-crawlies
Is this the way to get young people to vote?

Getting young people to vote

From #VOTESELFISH to Bite the Ballot
Poldark star Heida Reed: 'I don't think a single bodice gets ripped'

Poldark star Heida Reed

'I don't think a single bodice gets ripped'
The difference between America and Israel? There isn’t one

The difference between America and Israel? There isn’t one

Netanyahu knows he can get away with anything in America, says Robert Fisk
Families clubbing together to build their own affordable accommodation

Do It Yourself approach to securing a new house

Community land trusts marking a new trend for taking the initiative away from developers
Head of WWF UK: We didn’t send Cameron to the Arctic to see green ideas freeze

David Nussbaum: We didn’t send Cameron to the Arctic to see green ideas freeze

The head of WWF UK remains sanguine despite the Government’s failure to live up to its pledges on the environment
Author Kazuo Ishiguro on being inspired by shoot-outs and samurai

Author Kazuo Ishiguro on being inspired by shoot-outs and samurai

Set in a mythologised 5th-century Britain, ‘The Buried Giant’ is a strange beast
With money, corruption and drugs, this monk fears Buddhism in Thailand is a ‘poisoned fruit’

Money, corruption and drugs

The monk who fears Buddhism in Thailand is a ‘poisoned fruit’
America's first slavery museum established at Django Unchained plantation - 150 years after slavery outlawed

150 years after it was outlawed...

... America's first slavery museum is established in Louisiana
Kelly Clarkson: How I snubbed Simon Cowell and become a Grammy-winning superstar

Kelly Clarkson: How I snubbed Simon Cowell and become a Grammy-winning superstar

The first 'American Idol' winner on how she manages to remain her own woman – Jane Austen fascination and all
Tony Oursler on exploring our uneasy relationship with technology with his new show

You won't believe your eyes

Tony Oursler's new show explores our uneasy relationship with technology. He's one of a growing number of artists with that preoccupation
Ian Herbert: Peter Moores must go. He should never have been brought back to fail again

Moores must go. He should never have been brought back to fail again

The England coach leaves players to find solutions - which makes you wonder where he adds value, says Ian Herbert
War with Isis: Fears that the looming battle for Mosul will unleash 'a million refugees'

The battle for Mosul will unleash 'a million refugees'

Aid agencies prepare for vast exodus following planned Iraqi offensive against the Isis-held city, reports Patrick Cockburn