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smashed up cake and coffee | accountingweb | Pattiserie Valerie CFO on fraud charges
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SFO charges four with Patisserie Valerie fraud

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Four finance experts who oversaw the crumbling of Patisserie Valerie have been charged with fraud, nearly five years on from the first investigation into the high-street bakery’s implosion.

20th Sep 2023
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The former chief financial officer of Patisserie Valerie and three other people have been charged with fraud following the bakery’s 2019 collapse.

An investigation by the Serious Fraud Office (SFO) codenamed “Operation Venom” was opened in 2018 just days after the popular cake shop abruptly suspended trading.

The sudden halt led to 900 job losses and the closure of 70 stores as a black hole in the company’s accounts topping £94m was discovered.

The former CFO of Patisserie Holdings, Christopher Marsh, and his wife, accountant Louise Marsh, were served with charges at their home.

Marsh’s former deputy Pritesh Mistry, a financial controller, and financial consultant Nileshkumar Lad were also charged at their respective homes.

They will appear in court on 10 October.

False documentation

Fraud prosecutors have charged the four with conspiring to inflate the cash in Patisserie Holdings’ balance sheets and annual reports from 2015 to 2018. They are also accused of providing false documentation to the company’s auditors.

In a statement, the SFO said that the company also reported holding £28m in accounts, yet concealed £10m in debts from its investors and creditors.

“Patisserie Valerie’s abrupt collapse rocked our high streets – leaving boarded-up shops, devastating job losses and significant investor losses in its wake,” said Lisa Osofsky, director of the SFO. She said the charges were “a step forward in getting to the bottom of this scandal”.

The defendants will appear at Westminster Magistrates’ Court on 10 October.

Recipe for disaster

Luke Johnson, the multimillionaire chairman of the business, pumped £20m of his own money into the firm to keep it afloat when the fraud first came to light. Other shareholders later put in £15m, of which £10m was used to pay back half of Johnson’s loan.

Johnson said he had been fooled by a fake picture of its financial health and questioned the clean bill of health provided by the previous auditor Grant Thornton.

Multiple investigations into the fall of the bakery chain were launched, with Grant Thornton later fined £2.34m in September 2021 by the Financial Reporting Council (FRC).

The auditor also faced major lawsuits over the accounting failures, including a £200m case filed by the liquidators.

A £40m black hole was first discovered in the accounts in 2019, amid rumours of fraudulent invoices and significant malfeasance. However this ballooned to nearly £95m following a probe by forensic experts at KPMG.

The challenger firm was given a “severe reprimand” by the regulator and told it had to report annually for three years to prove it had significantly strengthened its audit controls and company culture.

Grant Thornton said the company has invested significantly in audit practice since the scandal.

Half-baked leadership

Legal expert Francesca Lee, of Alten Strategic consultancy, said there may be a salutary lesson in corporate governance from the Patisserie Valerie debacle.

“As a director of a company or a legal and compliance officer, have you asked yourself ‘how did this happen?’ ‘Could it have been prevented?’ ‘Was the board blind sighted and if so, what could have been done to mitigate it?’”

She said corporate governance is often misunderstood as a matter just for board members.

“Good governance is critical for maintaining or enhancing reputation that will increase growth, provide better access to financing or shareholder investments,” she said. 

“Internally, it provides a risk management matrix and better management and wellbeing for employees,” Lee said.

The case should also serve as a reminder that underwriting of credit facilities “relies heavily on a few people who control that information,” added Jerry Riches, financing expert and associate director at Business Finance Trust.

“Sometimes it is more apparent to a fresh pair of eyes that the information is flawed,” he said. 

“While such mistakes are less likely by an auditor, it is far from unusual for accounts to be corrected, or restated, due to an initial error, very often discovered by a new auditor being appointed and finding errors in the prior year figures.” 

Errors in management accounts “are very common, though seldom deliberate”, he said, adding “they can significantly misrepresent the trading both in profitability and balance sheet strength,” he said.

“My advice would be to always be diligent in having oversight to your management numbers at regular intervals, ideally by someone, probably your accountant, who is not simply checking their own homework,” he said. “Picking up errors or fraud early is the best way to avoid the outcome suffered by Patisserie Valerie.”

Slow process

The fraud case also has major ramifications for the SFO, which has a poor track record in court, and recently abandoned a high-profile case against G4S.

“Given it has taken five years for charging decisions to be made in this [Patisserie Valerie] case amid general concern at the duration of SFO investigations and the well-publicised delays in the court system, it could still be several years before the individuals stand trial,” said Richard Sallybanks from BCL Solicitors.

Replies (29)

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By Justin Bryant
20th Sep 2023 12:54

There's no sugarcoating this one. The sh*t must have really have hit the flan. They all wanted to have their cake and eat it it seems. It's bound to be a bit of a bunfight from here, with any hope of acquittal being mere pie in the sky.

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Replying to Justin Bryant:
By Ruddles
20th Sep 2023 12:58

I've often wondered about the point of having a cake if you can't eat it. (The problem of course being the use of the word 'have').

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Replying to Ruddles:
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By Justin Bryant
20th Sep 2023 20:05

I don't know about that, but I expect they'll get their just desserts all the same.

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Replying to Justin Bryant:
Pile of Stones
By Beach Accountancy
21st Sep 2023 10:00

No doubt they'll end up in custardy

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Replying to Justin Bryant:
By SteveHa
20th Sep 2023 16:32

Justin - honestly your best post in a while :)

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Replying to SteveHa:
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By Justin Bryant
20th Sep 2023 16:38

Clearly the proof will be in the pudding here.

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Replying to Justin Bryant:
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By C Graham
21st Sep 2023 13:59

Crumbling? They should have buttered it up a bit more.

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By carnmores
20th Sep 2023 15:41

it's been an over long wait for what appears a simple fraud. we shall watch the £200m claim against the auditors closely

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Replying to carnmores:
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By Justin Bryant
21st Sep 2023 10:45

Yes; apparently the auditors were satisfied with the answer "it's scone" when the CFO was asked to account for all the missing money.

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By emanresu
21st Sep 2023 11:06

Crumbs!

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By vstrad
21st Sep 2023 11:28

Everyone here seems to have a pun in the oven.

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By SuperAccountingSteve
21st Sep 2023 12:23

I want to join in, but i cant think of any yolks.

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By Ruddles
21st Sep 2023 12:24

This was always going to happen when the auditors look at records for only 12 out of 13 months.

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By Dib
21st Sep 2023 12:25

I wouldn't like to be in their choux!

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By A L
21st Sep 2023 13:19

And who said beancounters dont have a sense of humour?
One puff and it was all gone

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By richard thomas
21st Sep 2023 13:25

This fraud really takes the biscuit

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Replying to richard thomas:
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By C Graham
21st Sep 2023 14:00

Yep - when it came to the crunch

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By SuperAccountingSteve
21st Sep 2023 14:05

GT, about as much use as a chocolate teapot.

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Replying to SuperAccountingSteve:
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By C Graham
21st Sep 2023 14:08

Def someone suffered a meltdown

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By C Graham
21st Sep 2023 14:09

Should have used a better raising agent

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By Justin Bryant
21st Sep 2023 15:03

They're bound to éclaire bankruptcy I'd have thought.

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Replying to Justin Bryant:
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By C Graham
21st Sep 2023 17:28

someone is going to have egg on their face

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By richard thomas
21st Sep 2023 17:39

It may not just be frauds that have been committed: there may be tortes as well.

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Replying to richard thomas:
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By C Graham
21st Sep 2023 20:57

now you are just cherry picking

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By Justin Bryant
22nd Sep 2023 18:03

Some things may have been fudged.

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By carnmores
22nd Sep 2023 18:50

Dont these replies show what a sad bunch we are

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Replying to carnmores:
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By richard thomas
22nd Sep 2023 20:34

Yes. Remembering as I do that they served decent coffee, these comments make a mocha-ry of the serious intent behind the article.

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Replying to carnmores:
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By Justin Bryant
24th Sep 2023 09:42

Yes; it's very sad. If only the auditor had rated this as a high whisk business.

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paddle steamer
By DJKL
25th Sep 2023 12:47

Losses are often the result when dough does not rise, now prosecutors will require to prove their case but their success will certainly not be a choux in.

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