Large Auditing Firms Probed for Role in £230m Investment Scandal
The United Kingdom’s Financial Reporting Council announced on Wednesday that it would investigate the audits of two “Big Four” accounting firms for their failure to spot the collapse of London Capital & Finance (LC&F), which left over 11,400 investors facing losses of at least £230 million (US$ 285 million).
The U.K. regulator said it will investigate an audit of LC&F that was carried out by PricewaterhouseCoopers (PwC) in 2016, a 2017 audit by Ernst & Young (EY), along with one conducted in 2015 by a smaller firm, Oliver Clive & Co.
The investigation will look into why the auditors failed to report LC&F’s suspicious financial activity that left thousands of investors facing hundreds of millions in losses.
According to the Guardian, LC&F, which collapsed in January of this year, promised strong returns to investors, despite the fact that the money it raised from investors was funnelled into “speculative property developments, oil exploration in the Faroe Islands and even a helicopter bought for a company controlled by LC&F.”
A woman who organized a Facebook group that is seeking justice for the victims of the financial scandal said that her loss of roughly £40,000 ($50,000), was a small sum compared to a number of pensioners who stood to lose six-figure portions of their retirements.
“I’m 41 and can make up the money in future,” she told the Guardian. “But a lot are elderly and completely devastated. This is one of the biggest financial scandals around.”
Over a year after individuals at the firm were investigated by the U.K.’s Serious Fraud Office, another investigation was launched into the auditors who helped legitimize and enable its behavior.
Prem Sikka, a chartered accountant and professor at the University of Essex who has written numerous books and academic papers on the accounting industry, expressed skepticism on his Twitter account about whether the active investigation would change the business practices of these large accounting firms.
“Firms don't fear investigations,” he wrote. “They pay fines and carry on delivering dud audits. No prosecutions, and no firm closed.”