Slater & Gordon investors spooked by Quindell revelations

SHARES in Australian legal consolidator Slater & Gordon, which is a major force in Manchester and the North West,  have fallen sharply overnight as investors digested the latest revelations coming from Quindell – the UK insurance technology company which sold it a business for £637m earlier this year.

On Wednesday, The Serious Fraud Office said it had launched a criminal investigation into  AIM-listed Quindell’s accounting practices after it said profits had been overstated.

In 2013, it told investors that it had made a profit of £107m, but under new accounting processes that it has now adopted, it actually lost £64m. Last year’s loss of £92m became a loss of £282m.

Most of the disappearing profit arose from Quindell’s professional services division, which it sold to Slater & Gordon in March.

As a consquence, shares in Slater and Gordon slumped by nearly 20%.

The law firm then tried to reassure investors that it won’t face future liabilities in relation to the former Quindell business, which is headquartered in Liverpool. It also defended the due diligence it did on Quindell.

As well as the Serious Fraud Office investigation, the Financial Reporting Council and Financial Conduct Authority are probing Hampshire-based Quindell.

Slater and Gordon told investors: “Given the acquisition was structured as an acquisition of the [division’s] entities rather than an acquisition of the common stock of Quindell, Slater and Gordon is confident that it has no liability in relation to those ongoing investigations into Quindell by various authorities,” it said.

Quindell revised its accounts after new auditor PwC found that some of its previous accounting policies were “aggressive” or  “not appropriate”.

Slater and Gordon said it was important to separate issues associated with Quindell’s historical statutory accounts from the law firm’s assessment of the professional services division’s value and likely future performance.

“The publication of these statutory accounts does not alter Slater and Gordon’s view of the [division], nor the economic benefits Slater and Gordon expects the business to generate,” it said.

Under Quindell’s new accounting practices, discontinued activities (how it now deems the professional services division) revenue for 2014 was calculated at £220m rather than the £510m. Pre-tax profits of an estimated £175m became losses of £137m.

Quindell’s new finance director Mark Williams said that despite this major revision, the value of the professional services division had not been altered.

He told The Law Gazette: “They (S&G) were given a huge amount of disclosure and we are well aware that the board was likely to change the approach in relation to accounting policies. It doesn’t change the value of the asset they purchased.”