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KPMG made ‘untruthful’ defence in Silentnight case, FRC says

Sanctions of £13 million and £500,000 will be imposed on KPMG and Mr Costley-Wood respectively and are the ‘highest ever’ imposed on a member firm and member in a non-audit case

KPMG constructed an untruthful defence and withheld evidence from regulators as it tried to cut a fine for misconduct during the sale of bedmaker Silentnight, according to a report by the Independent Disciplinary Tribunal.

It reveals Costley-Wood and KPMG claimed that Silentnight faced a “burning platform” prior to the debt sale agreement, however the tribunal deemed this false and said it was a “construct” invented by Costley-Wood to assist in his defence.

According to the report, KPMG failed to reveal “material facts” when required, such as the recording of £45,000 of time costs prior to their formal engagement and the ad hoc retainer with Silentnight commencing around 16 August 2010.

The financial sanctions of £13m and £500k imposed on KPMG and Costley-Wood respectively by the tribunal in this case are the highest ever imposed on a member firm and member in a non-audit case.

The tribunal said: “The failure to carry out comprehensive searches in response to the specific requests by the executive counsel is a serious matter as it does exhibit a failure to cooperate.”

Elizabeth Barrett, executive counsel, added: “KPMG and Costley-Wood compounded their serious Misconduct by advancing a defence to proceedings which was partly untruthful and by failing to cooperate with the investigation.

“This ruling contains important learnings for Members and Member Firms, both in relation to the original Misconduct and in relation to the conduct expected once an investigation has been commenced.”

Jon Holt, chief executive of KPMG in the UK, said: “This report makes difficult reading. We accept the findings of the tribunal, and we regret that the professional standards we expect of our partners were not met in this case and that it has taken over a decade to reach this point.”

“We no longer provide insolvency services and we have improved our broader controls and processes significantly since this work was performed in 2010. We will reflect on the tribunal’s findings carefully and ensure that we learn lessons to reinforce our focus on building trust and delivering work of the highest quality.”

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