Deloitte challenge PwC in £25m claim over Guernsey ‘Ponzi’ scheme 

1. PwC in bid to dismiss £25m claim over a Guernsey ‘Ponzi’ scheme Big Four auditor up against the administrators (Deloitte) in Providence collapse

PWC AND THE REGULATED FUND (PONZI SCHEME)

2. The closed-ended GFSC AUTHORISED AND REGULATED absolute return fund aimed to provide investors with annual returns of between 7% and 14.25% from investments in Brazilian debt, specifically the factoring of receivables (the purchase of debt) of small and medium-sized businesses.
3. The fund lent money to the factoring company based in São Paulo for between 30 and 180 days. The short-term debt was purchased at a discount of more than 2% per month with the returns collected at par.
4. The minimum investment was $50,000, €37,500, or £30,000.
5. PwC audited Providence’s 2013 and 2014 accounts, producing “clean” audit reports on the financial statements for both years in April 2016, the court filings said.
6. Two months later, the US Securities and Exchange Commission began investigating Providence Financial Investments, part of the same group, for selling “fraudulent securities”.
7. Another subsidiary, Providence Bonds II, came under scrutiny for selling UK investors a so-called “mini-bond” — a high yielding investment product. PwC resigned as auditor to Providence Investment Fund in July 2016, one month before the appointment of administrators.

BACKGROUND

8. The Providence Fund and its manager, Providence Investment Management International Limited (Pimil), were put into administration in August 2016 following an application by the Guernsey Financial Services Commission (GFSC).
9. The decision was taken after all of the directors from both companies resigned in early August, having informed investors that the fund had been suspended on 29 July 2016.
10. Deloitte was appointed administrators and found, as part of its review, that the Providence parent company was insolvent. As a result, joint liquidators were appointed to Providence Global on 22 August 2016.
11. A criminal investigation into Providence was launched on Guernsey in October 2016.
    1. four men have been arrested on suspicion of fraud as part of the ongoing investigation into the collapsed Guernsey-based Providence Investment Fund that saw some investors lose their life savings.
    2. Four arrested in connection with Guernsey’s Providence funds
    3. The men, who have not been named, were arrested in Guernsey this week. They have since been released on bail pending further inquiries, according to local media reports.
12. At the time and According to local newspaper, a local law enforcement spokesman said:
13. “The arrests were undertaken at four separate addresses in the island, in connection with suspected offences of fraud by abuse of position and in response of the provision of false or misleading, or recklessly furnishing information relating to the protection of investors.
14. “Due to the ongoing nature of this investigation, we are unable to give any further details at this time.”

PWC V DELOITTE

13. PwC is trying to quash a £25m lawsuit in which it is accused of negligence for signing off on the accounts of Providence Investment Fund, a Guernsey “Ponzi scheme” that collapsed owing investors millions.
14. The Big Four accounting firm has filed an application to dismiss the claims against it, which are being brought by administrators to the failed investment company in the Guernsey courts.
15. The administrators at Deloitte, another large accounting firm, are suing PwC for
16. “negligence, breach of duty and breach of contract” in its role as auditor to the Providence fund.
17. PwC called the lawsuit “misconceived” and said it would vigorously defend it.
18. Providence was put into administration in 2016 owing investors, who were promised returns of up to 14 per cent, more than £40m.
19. Court documents filed by lawyers for the administrators allege the business was run as a “fraudulent Ponzi scheme”.
20. PwC said: “While we are disappointed this action has been brought, we believe the claim is misconceived and will seek to vigorously defend our position through the court process.”
21. The audit work was carried out by PwC’s Channel Islands office, a subsidiary of PwC UK.
22. A hearing will take place on the disclosure of documents in Guernsey in October.
23. PwC’s application to dismiss the case will be heard in November.
24. A person close to the process said administrators at Deloitte would oppose PwC’s application.
25. The administrators’ case is being funded by Manolete Partners, a litigation financing company that is listed on the London Aim market.

NOT THE ONLY CASE

25. The lawsuit is just one of a handful of legal cases brought against Britain’s largest audit firms by the administrators or liquidators of failed businesses.
26. KPMG is facing a lawsuit over allegations of negligence in its audit of Carillion by the UK government agency tasked with unwinding the collapsed outsourcer.
27. KPMG has also been told by the board of Goals Soccer Centres to prepare for a legal challenge over claims it was negligent in its tax accounting of the football pitch operator.
28. Grant Thornton under fire – Administrators to Patisserie Valerie have also been tasked by creditors to explore a possible legal claim against Grant Thornton, the cake chain’s auditor after it collapsed following an apparent fraud.

Background

26. Providence claimed to invest in Brazilian factoring, a type of debt financing.
27. 97 per cent of investors’ money was used to finance the wider Providence group, according to the court papers.
28. The documents said investors’ cash was also lent to companies in Brazil that were controlled by Antonio Buzaneli, founder of the Providence group.

Mr Buzaneli, a Florida businessman, was this year sentenced to 20 years in prison in the US as part of a plea agreement after he was accused of orchestrating an investment fraud at the group company, Providence Holdings International.