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NMC Health administrators are preparing to sue EY for over £ 1 billion over claims that the Big Four auditing firm was negligent when it signed the group’s accounts during a multi-million dollar “long-term” fraud.
NMC Health, the former healthcare group FTSE 100, collapsed this year after discovering that apparently more than $ 4 billion was hidden from its balance sheet in a large-scale fraud that spanned operations from Abu Dhabi to London.
EY has overseen NMC’s accounts since the healthcare company floated into London in 2012. The quality of the company’s audits has already been called into question due to the fact that the NMC board included former EY partners.
Trustee Alvarez & Marsal said it had hired the Quinn Emanuel law firm to file a claim against EY and had already issued a preliminary notice informing the audit firm that it intended to file a lawsuit.
In a progress report to creditors, Alvarez & Marsal said it was still investigating the size and scale of the fraud, how it had been perpetrated and by whom, while looking to evaluate potential claims and recoveries.
“The investigation is complex given the well-organized and long-term nature of the fraud, along with the number of jurisdictions involved,” he said.
The Financial Reporting Council has already opened an investigation into EY’s audit of NMC’s 2018 financial statements.
The lawsuit is the latest blow for EY, which faces huge lawsuits and regulatory scrutiny over its audit work in other high-profile scandals, such as Wirecard, the German payment processor that failed this year amid $ 1.9 billion fraud. of euros.
EY earned around £ 14 million in audit fees from NMC Health over seven years.
EY said: “We can confirm that EY has received preliminary notice of a complaint letter from the administrators to NMC Health. It would be inappropriate to comment further. “
A person close to the matter said: “The fraud is believed to have been going on since the time of the IPO. EY was the designated accountant for the IPO and has also audited related companies, including Finablr.
“EY had a unique perspective on this group of companies, so the statement will be significant.”
The person added that it is likely to exceed £ 1 billion, but lawyers and accountants are still doing calculations before filing the lawsuit in London courts. The servicer’s attorneys will have to show that NMC’s financial performance would have been significantly different without EY’s allegedly negligent audits to pursue the amount of its claim.
NMC has been one of the biggest accounting scandals in the City of London in recent years. He was a respected member of the FTSE 100 until late last year, when short seller Muddy Waters began questioning his accounts and management.
The hedge fund also raised concerns about what it described as the “welcoming” relationship between EY and NMC given that the board included former partners of the audit firm, which it claimed meant there was a “lack of rigor. “in your audits.
Although NMC initially denied the allegations, the company was quickly forced to conduct its own investigation that found billions in debt that had not been disclosed to the market amid allegations of administrative misconduct.
People close to the company have alleged that the fraud included false accounting, falsified invoices and kickbacks.
Álvarez & Marsal said it was not yet possible to estimate payments for unsecured creditors. Several NMC businesses are being sold to raise money, including IVF clinic operators in the US and Europe.
The report also shows that Alvarez & Marsal has thus far earned more than £ 22 million in management oversight fees.
