PwC faces £14m lawsuit over Providence collapse

Investors in Guernsey-based company Providence Investment Fund (PIF), which collapsed in 2016, are to sue the audit firm for £14m for what they term ‘negligence, breach of duty and breach of contract as its auditors’

PIF was a Guernsey-based fund that offered up to a 14% return on investment. Investors in Providence companies were told their money would be used for factoring accounts receivable in Brazil, a financial transaction in which accounts receivable are purchased at a discount.

Investors were notified in July 2016 that the fund had been suspended following an application by the Guernsey Financial Services Commission (GFSC), and Andrew Isham and Phil Bowers of Deloitte were appointed as the administration managers to the investment fund by order of the Royal Court of Guernsey the next month.

Papers filed by Mathew Newman of Ogier, representing the investors, claim that ‘In or about February 2015, PwC commenced its audits of PIF for the period from 1 October 2012 to 31 December 2013 and for the year ended 31 December 2014.

‘After a prolonged audit process, on 27 April 2016 PwC gave clean audit reports on the financial statements of PIF for both those periods’.

In its audit of the company’s 2014 accounts, PwC stated that ‘In our opinion, the financial statements give a true and fair view of the financial position of the company as of 31 December 2014, and of its financial performance and its cash flows for the year then ended in accordance with UK accounting standards and have been properly prepared in accordance with the requirements of the Companies (Guernsey) Law 2008’.

The filing alleges that PwC ‘failed to obtain and/or act upon either a deep or any adequate understanding of PIF’s business model. By 31 December 2014, the proportion of investors’ subscriptions to PIF being invested in Brazil was on a strongly downward trajectory and had reached a point where only 40% was being invested in Brazil’. The remaining 60% was being passed to Providence Group Limited.

In June 2016 the US Securities and Exchange Commission (SEC) began proceedings to block the fraudulent offering of securities by companies in the Providence Group.

According to the court filing, ‘On 22 July 2016, PwC wrote to PIF announcing its resignation as PIF’s auditor and stating that “there are no circumstances connected with our ceasing to hold office…which we consider should be brought to the attention of the company’s members or creditors”’.

The investors allege that ‘Had PwC discharged its duties and obligations to PIF, either the directors and management of PIF or the GFSC, or both, would have ensured that promptly upon receipt of the necessary report from PwC, PIF ceased to accept further subscriptions from investors and collected in all assets within its reach.

‘PIF would then have avoided the loss of £14,012,730.38 in investors’ money received and disbursed after 11 May 2015’.

In April 2018 the former CEO of Providence Holdings International and principal of Providence Investment Fund, Antonio Buzaneli, submitted a guilty plea in a US court for his part in a $150m (£118m) Ponzi scheme involving ‘a network of brokers who sold promissory notes bearing annual interest rates between 12 and 24%’. 

Report by James Bunney


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