KPMG will pay £5mn to settle a lawsuit over audit failings at UK insurance software group Quindell as the Big Four firm continues to work through a backlog of legal and regulatory cases that have built up over the past decade.
Quindell, now called Watchstone, issued the High Court claim against KPMG in November 2021 alleging it suffered losses because of problems in the audit of its 2013 financial statements, which were restated in 2015.
Watchstone had alleged that KPMG was negligent and breached its duties, claiming damages of £13.7mn plus interest from the firm for dividends paid out and fees incurred as a result of problems with the audit. The case was not expected to reach trial until 2024.
Under the settlement announced by Watchstone on Monday, KPMG will pay £4.95mn without admitting liability.
The payout is equivalent to seven times the £688,000 average profit share of KPMG’s UK partners in the year to September 2021, the most recent for which it has filed accounts.
KPMG declined to comment other than to confirm it had reached a settlement. It said last year it would defend the claim because it believed the shortcomings in its audits had not caused the losses claimed.
The settlement takes the total payouts made by KPMG over its work at Quindell to more than £8mn. The audit firm and one of its partners were reprimanded and fined £4.5mn by the Financial Reporting Council in 2018 but the penalty was discounted to £3.2mn because the auditor agreed to settle.
Quindell was a former country club operator that reached a valuation of £2.7bn, and became the most valuable company on London’s junior Aim after raising money to buy businesses in sectors ranging from insurance claims processing to loft insulation and car repairs.
It renamed itself Watchstone after its shares were suspended in 2015 and the Financial Conduct Authority began investigating its accounts. The company later restated its accounts, to rectify accounting practices it said were “aggressive” and “not appropriate”.
Watchstone subsequently sold off all its trading businesses and is now seeking payouts in a number of court cases and to return the cash to shareholders.
The UK’s Serious Fraud Office last year closed a six-year investigation into business and accounting practices at Quindell without bringing charges against the company or its former directors.
The FRC this month ended a separate seven-year investigation into an unnamed member of the accounting profession, understood to be a former Quindell director, responsible for preparing and approving the company’s accounts.
Settling the Watchstone claim clears one more in a string of regulatory and legal cases against KPMG in the UK, where it has paid more than £20mn in regulatory fines since April last year.
The largest outstanding cases are an FRC investigation into the firm’s auditing of Carillion, the outsourcing and construction group that collapsed in 2018, and a separate £1.3bn claim by the group’s liquidators.
Watchstone is preparing for a separate court battle next year with PwC, its former adviser. PwC has denied allegations that it conspired against its client by divulging confidential information to investment bank Greenhill, an adviser to law firm Slater & Gordon.
Watchstone claimed that the release of information by PwC helped Slater & Gordon pay a lower price when it bought Watchstone’s professional services business.