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Auditor battles to quash £25m fraud scheme ‘negligence’ claim

Auditor battles to quash £25m fraud scheme ‘negligence’ claim

Wednesday 02 October 2019

Auditor battles to quash £25m fraud scheme ‘negligence’ claim


PwC is battling to dismiss a £25m claim that it ‘negligently’ signed off on the accounts of a $150m fraud scheme that lost some Bailiwick investors their life savings.

The allegation against the 'Big Four' auditor in respect of its work with Guernsey’s collapsed Providence Investment Fund (PIF) – which was marketed to Channel Island customers by jailed ex-financier Christopher Byrne - is being made by administrators Deloitte in Guernsey’s courts.

But PwC denies “negligence, breach of duty and breach of contract”, explaining that it was “disappointed” by the lawsuit, which it blasted as “misconceived” in a comment in the FT.

Video: Ex-financier Chris Byrne leaving Jersey's court after being sentenced to seven years' jail for his involvement with the PIF.

It’s reported that the firm’s Channel Islands branch provided ‘clean’ audit reports on Providence’s 2013 and 2014 accounts in April 2016 – two months ahead of an investigation being launched by the US Securities and Exchange Commission, and further scrutiny of subsidiary Providence Bonds II.

PwC stepped down as PIF’s auditor in July 2016, shortly before administrators were appointed. 

Later revealed to be a ‘Ponzi’ scheme, the PIF involved purported ‘Brazilian factoring’ – a transaction in which accounts receivable are purchased at a discount.

Those marketing the scheme told investors that Brazilian consumers tend to write ten post-dated cheques of $100 – one per month – to pay for groceries, electronics and other goods worth $1,000.

Providence said it would then buy these post-dated cheques from the retailer for $820, meaning that it would be able to gain a profit of $180 once the cheques matured.

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Pictured: Providence lost some investors in Guernsey and Jersey their life savings.

Investors were told that the money they gave would be used to fund a Brazilian subsidiary of Providence that would engage in this process, generating returns for them.

However, most of the money ended up being used to make Ponzi-style payments to other investors and commission payments to its global network of brokers.

They were also said to use the money for other companies they controlled, including as a catering company and food truck operated by the wife of Florida businessman Antonio Buzaneli, founder of Providence.

He was sent behind bars for 20 years in April this year.

The sentencing followed that of Chris Byrne, the former CEO of Lumiere, who was found after trial last year to have duped clients into investing £2.7million into Providence.

He was subsequently imprisoned for seven years.

A court hearing on whether the PwC case should be dismissed is currently scheduled for next month in Guernsey.

Pictured top: Miami, where the parent company of the collapsed Providence Investment Fund (PIF) that lost Channel Islands investors thousands was based.

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