5 Mar 2013 12:40pm

PwC failed as “competent auditor”, says Cattles

PwC failed to carry out the basic investigations expected from a “reasonably competent auditor” for Cattles, according to new court filings

Last month, the subprime lender launched a multimillion-pound claim for damages against PwC, alleging “audit negligence” for failing to spot major holes in its accounts in 2006 and 2007.

Cattles said the failure resulted in it piling up £1.6bn in debts and liabilities, bringing the FTSE 250 firm to the brink of collapse and forcing it to suspend shares in 2009.

Zolfo Cooper, acting on behalf of Cattles, lodged court fillings detailing the claim this week.

According to the filings, “PwC accepted representations made to them by [Cattles] management without seeking any or any adequate corroborative evidence and without any or any adequate critical thought about the reasonableness of such representations.”

It also alleges that PwC failed to spot that Cattles’ lending subsidiary was manipulating its loan book, resulting in investors being unaware that the sub-prime lender had fallen into debt.

The fillings claim a Cattles compliance manager warned his colleagues in June 2006 that the practices were “unlawful”, yet it continued for nearly two years, undetected by the auditors.

Zolfo Cooper alleges that PwC “performed no independent investigative work” and therefore PwC should be held liable for the ensuing losses.

PwC has until June to file its defence.

The fall out from Cattles demise has rumbled on for the last couple of years, most recently with Peter Miller being excluded for six years by the Financial Reporting Council (FRC) for his role as FD of a Cattle subsidiary.

In addition, Miller and former Cattles finance director John Corr, were fined and banned by the Financial Services Authority for misleading financial reports.

PwC made reference to the director’s conduct when responding to the case, and said it would fight the claims in the High Court in London.

“We are disappointed that this claim has been issued given the FSA's censure of the company for market abuse as well as the FSA's conclusion that certain directors of Cattles were found to have acted without integrity in discharging their responsibilities,” the firm said in a statement.

"This is an inflated and misguided claim and, as we have made clear before, we will vigorously defend our work."

There is also an ongoing Financial Reporting Council investigation into PwC’s audit work for Cattles. The Accountancy and Actuarial Discipline Board is investigating the 2007 annual financial statements, the June 2008 interim financial statements and the 2008 and 2009 public statements.

Raymond Doherty


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