PwC once acted as the investment company’s auditors and Providence is claiming negligence, breach of duty and breach of contract.
Papers filed with the Royal Court state PwC started its audits for the company in February 2015 covering the period from 1 October 2012 to 31 December 2013. Its report gave the investment firm a clean bill of health in April 2016.
Proceedings against Providence by the United States Securities and Exchange Commission began in June 2016 ‘to put a stop to the fraudulent offering of securities in the United States by entities of the Providence group’.
PwC announced it was resigning as the company’s auditor about one month later, stating that ‘there were 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 Royal Court appointed administration managers to Providence in August, 2016.
Subsequently, in April this year, the dominant person behind the investment company, Antonio Carlos de Godoy Buzaneli, entered into a plea agreement in the US under which he agreed to plead guilty to conspiracy to commit mail fraud in connection with the operations of the Providence group.
‘From the inception of its business in 2012, and throughout the period when it was audited by PwC, PIF (Providence Investment Fund) was operated by Mr Buzaneli and others as a fraudulent Ponzi scheme,’ state the court documents.
More than £41m. was raised from investors, and at the time the administrators were appointed, some £37.2m was outstanding to investors from the company, which had no assets.
Providence is claiming that PwC should have realised that a fraud was probably taking place owing to the amount of research it had done into the financial activities of the company, and it failed to report the necessary matters to the Guernsey Financial Services Commission or to ‘appropriate persons’ at Providence.
In addition ‘PwC failed to conduct the audit of PIF’s financial statements for the period from 1 October 2012 to 31 December 2013 with expedition’.
‘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 it reach.
‘PIF would then have avoided the loss of £14,012,730.18 in investors’ money received and disbursed after 11 May 2015.’
The action was placed on the pleading list by the Ordinary Division of the Royal Court, and PwC has 28 days in which to file its defences.