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A leading accountancy firm and one of its partners has agreed to pay £2m in fines and legal costs for substandard conduct when advising the pension fund of First Quench in 2007.
The Financial Reporting Council (FRC) has charged Mazars £750,000 – a record for a case settled outside a tribunal – and charged the firm £1.12m in costs. It fined the firm's main partner in the case, Richard Karmel, £50,000 and charged him £80,000 in costs.
The FRC reprimanded Mazars for its conduct, which the firm admitted fell short of expected standards. The fine was reduced from £850,000 because the firm admitted liability and settled. Karmel's fine was cut from £57,00 for the same reason.
The case concerned the advice Mazars gave to the trustee of the First Quench pension fund in 2007. First Quench was a wholly owned subsidiary and the main trading business of Threshers, the wine retailer that went bust in 2009. As well as Threshers, its brands included Wine Rack, Bottoms Up and Victoria Wines.
The pension fund had a deficit of about £28m in June 2006. After a transfer of ownership in July 2007, three-quarters of Threshers was owned by Vision Capital, a private equity firm, with the rest in the hands of the specialist insurer Pension Corporation.
In 2007, Pension Corporation proposed transferring the assets and liabilities of the pension fund away from the Thresher group or into another fund held by a Pension Corporation company, the FRC said.
Mazars was hired to advise the trustee of the pension fund, but the FRC found Karmel presented reports to the trustee that exaggerated the case for transferring the fund away from First Quench. The advice did not take into account guidance from the pension regulator, which had become concerned about companies abandoning their pension obligations.
Karmel had a conflict of interest because his responsibility was to the pension fund trustee but he acted in the interests of Pension Corporation and not the trustee, according to the FRC. He also breached client confidentiality by disclosing information to Pension Corporation without the trustee's authority.
Paul George, the FRC's executive director of conduct, said: "Accountants must not allow undue influence of others to override their professional judgements and they must have a clear understanding of who their client actually is."
Mazars, which claims to be Britain's ninth biggest accountancy firm by audit revenue, said Karmel would remain as a partner.
A spokesman for Mazars said: "We regret that our conduct fell below our usual high standards in relation to this 2007 advisory assignment. We are pleased that the FRC accepted that the misconduct was neither dishonest nor deliberate, that we took appropriate remedial steps relating to quality assurance, and that it did not cause any actual loss to the beneficiaries of the pension fund."
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