A leading accounting firm that acted against the interests of its own client and endangered the pensions of thousands of ordinary British shop workers has been hit with a £1.87 million penalty.
Mazars, the ninth largest audit firm in Britain, admitted that its conduct fell significantly short of standards to be expected after settling with the regulator, the Financial Reporting Council.
Richard Karmel, one of Mazars’ London managing partners, personally paid an additional penalty of £130,000 and, like the firm, was issued with a formal “severe reprimand”, one notch short of being suspended or struck off.
The findings also raised questions about the conduct of the Pension Insurance Corporation, which had close dealings with Mr Karmel, although it was not directly criticised by the FRC.
Mr Karmel’s multiple failings occured after he was hired by the trustees of the First Quench pension fund in the summer of 2007, a fund with a £28 million shortfall whose members included 2,000 past and present employees of Threshers, Victoria Wine and other off-licence shops.
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Mr Karmel’s role should have been to advise the trustees on the best way of protecting the interests of members as the scheme’s sponsoring company was being taken over by Pension Corporation, which aimed to sever the link with the pension fund and then sell it.
Instead, the FRC uncovered evidence that Mr Karmel was in cahoots with Pension Corporation, at one point even advising it on how it could mislead his own client, as well as giving it access to confidential documents intended for the trustees alone.
In a highly unusual arrangement, the FRC described how initially he had been approached by David Collinson, a senior Pension Corporation manager and actuary, who was “a personal associate of 15 to 20 years”. Mr Collinson then “invited” Mr Karmel to advise the trustees — an invitation that the trustees were unaware of, the FRC said.
In one damning email exchange, Mr Karmel advised Pension Corporation to remove from a draft letter to trustees a phrase that would have alerted them to the danger that £9 million held in escrow could be siphoned off by shareholders even if the pension fund was still in deficit.
“I would suggest this may not help the case,” he wrote in an email to a Pension Corporation executive. “If you do intend to do this, why not just suggest it at the time rather than highlight it now.”
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The FRC said that the email demonstrated that Mr Karmel was acting against the interests of his client. Mr Karmel admitted later to FRC investigators that “it looks as if I’ve crossed the line there”, but he denied that he had intended to mislead his client.
The Paris-based Mazars is standing behind Mr Karmel, who will remain a partner in the firm, in charge of the 100-strong industry and services division in the UK. It said the FRC “accepted the misconduct was neither dishonest nor deliberate . . . and did not cause any actual loss” to pension fund members.
The total £2 million penalty, which included £1.2 million to cover the FRC’s legal costs, is one of the largest meted out by the regulator, exceeded only by the £14 million fine of Deloitte over the MG Rover scandal, which is subject to appeal.
“Accountants must have a clear understanding of who their client actually is,” Paul George, the FRC’s executive director of conduct, said.
Pension Corporation, now called Pension Insurance Corporation, is understood not to have taken disciplinary action against any staff member. It said that a linked FRC investigation into the “actuaries concerned” had been dropped in August 2013 when no grounds were found to pursue them.
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It also said that later PIC was picked by the the First Quench trustees to conduct a £160 million buy-in of the pension fund assets and liabilities, securing better pension terms for members than if it had been tipped into the Pension Protection Fund.
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