Quindell saga ends with £152m restatement. Or does it?
The FRC has closed its investigation into Quindell’s accounts after requiring the company to restate its financial results for the last two years.
Downward prior year restatements amounting to £152m were published alongside delayed figures showing the company’s revenue slumped by £290m, and its post-tax profits by £282m in the year to 31 December 2014.
According to the FRC’s official announcement, the changes needed in Quindell’s 2012 and 2013 accounts included:
- Revised accounting policies for claims management revenue recognition and related costs that reduced 2013 revenue by £109m and profit after tax by £130m.
- Reinterpreting the acquisition of Quindell Limited by Mission Capital as a reverse acquisition, with the effect of reducing goodwill and net assets at 31 December 2012 and 2013 by £25m.
- A £4m reduction in the revenue booked for transactions in 2011 that reduced net assets at 31 December 2012 and 2013 by £2m.
Quindell’s troubles started in April 2014 after the short-selling firm Gotham City Research published a dossier alleging that “42%-80% of Quindell’s profits are suspect”. Gotham City stated that Quindell’s biggest client was itself and that the company “was little more than a country club until 2008/09, yet QPP somehow began reporting Microsoft/Google-esque profit margins in 2010/2011”.
“Quindell’s shares are worth no more than 3p,” concluded the report. Quindell responded by taking Gotham City to court for libel.
Quindell did start life as a country club, before going on an acquisition spree under the auspices of now ousted founder Rob Terry. As David McCrum explained in the FT’s Alphaville blog, the company’s acquisitions were mostly insurance-related: “Claims management, legal services, physiotherapy, telematics, bought with a lot of Quindell stock typically issued at a premium to the existing price.”
Terry was ousted in November last year, when the company reported that three directors had bought shares using a loan secured against their pre-existing stakes. Quindell brought in a new management team; chairman Richard Rose was appointed in January and finance director Mark Williams in April. Terry has not yet been replaced as chief executive, but the company said an appointment is imminent.
Quindell is not out of the regulatory woods, however. Following the restatement announcement, the Serious Fraud Office launched an investigation into the company’s business and accounting practices yesterday. Quindell responded by saying it would “continue to cooperate with all relevant regulatory and law enforcement authorities”.
The FRC is not done with the case either. The regulator's Professional Discipline Team has now opened separate investigations into members and two member firms in relation to the preparation, approval and audit of the financial statements of the company for the period ended 31 December 2011 to the year ended 31 December 2013 and for the preparation and approval of the company’s interim results for the half year ended 30 June 2014.
The two member firms are believed to be KPMG and Baker Tilly (formerly RSM Tenon), both of which acted as Quindell’s auditors between 2011 and 2013.
KPMG audited Quindell’s 2013 accounts, which included a pre-tax profit of £107m that was restated on Wednesday as a £64m loss. Quindell’s accounts show that KPMG “raised a number of concerns with management” about the company’s financial disclosures, but those concerns were overridden.
Quindell’s shares were suspended from AIM on 24 June. The company resumed trading at 7.30am this morning after yesterday’s results announcements.
Quindell sold its legal arm – as well as most of its insurance and telecoms business – to the Australian legal group Slater & Gordon for £637m last year.