The Serious Fraud Office (SFO) has confirmed that it is investigating Quindell’s ‘business and accounting practices’ as the company published revised annual accounts for 2014 showing a £312m swing from profit to loss in its Professional Services Division (PSD).
Accounts released today (5 August) for the year ending 31 December 2014 were adjusted to more conservative accounting policies, adjusting the schedule when revenues and cost were accounted for. The change saw what had been logged as a £175m pre-tax profit for the PSD, which mostly comprised legal services and was sold to Slater & Gordon this year, corrected to a £137m loss.
The accounts also show legal services revenue, which counted as ‘discontinued activities’, for 2014 calculated at £220m instead of the £510m originally declared, while in 2013 re-calculated revenue for the year dropped by £109m to £186m and pre-tax profits changed from £89m to a £55m loss.
Following the release, the SFO confirmed in a statement that it had opened a criminal investigation into the ‘business and accounting practices at Quindell plc.’
Quindell said in statement: ‘The Serious Fraud Office informed the company that it had opened an investigation, which the company understands relates to past business and accounting practices at the company. The company will continue to cooperate with all relevant regulatory and law enforcement authorities.’
‘In addition, the company notes the announcement made by the Financial Reporting Council earlier today and welcomes its statement that, in light of the positive actions taken by the directors in correcting the identified errors, amending accounting policies and providing their undertakings, the committee is closing its review of the 2011 and 2012 report and accounts.’
The company, which sold its professional services division including its legal services to the Australian-listed law firm for £637m, suspended trading in its shares on AIM in June and is conducting a review, along with its auditors, of a number of the company’s historic transactions and acquisitions.
Quindell, which grew through a spate of legal provider acquisitions, brought in PwC in December 2014 to carry out an independent review, evaluating the group’s main accounting policies and cash generation expectations for 2015. Following the review it had identified certain accounting policies which ‘were largely acceptable but were at the aggressive end of acceptable practice’.
The PSD, mostly handling personal injury but also includes marketing and motor services, employs around 1,400 staff, and operates under a range of brands including Silverbeck Rymer, Pinto Potts and The Compensation Lawyers, while the complementary services has around 1,000 staff members.
The saga has also caught the attention of the Financial Conduct Authority (FCA) which confirmed in June it was launching an investigation into the professional services company, and looking at public statements made regarding its 2013/14 financial accounts, a period during which it owned a raft of legal brands.
In the report, Quindell’s non-executive chair Richard Rose, said: ‘I am pleased to say that the new board has made significant progress in consigning the events of 2014 to the past and is well advanced in creating a solid base for the future. A variety of factors led the business to become destabilised.’
Rose added: ‘Investor trust in the company and its board was eroded and it became clear that decisive action was necessary to bring stability back to Quindell and rebuild the confidence of employees, investors, regulators, customers and suppliers alike. A great deal has been done in a short space of time to turn the tide, and I am confident in the company’s long-term future and the potential of our businesses.’
Slater & Gordon declined to comment.