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Arrests over Patisserie Valerie alleged fraud

Service Area: Fraud

Member: Roger Isaacs

According to the Serious Fraud Office (SFO), five people have been arrested and questioned over alleged accounting fraud at Patisserie Valerie, although Luke Johnson, Patisserie Valerie’s former chairman and a columnist for The Sunday Times, was not among those arrested.

Mr Johnson, who was the firm’s largest shareholder when it failed in January with the loss of 900 jobs, and who lent the ailing firm £10 million of his own money, said the discovery of the ‘black hole’ in the accounts, was like entering a “nightmare parallel universe”.

Forensic accountants brought in after the collapse said that the accounts had been overstated by approximately £94 million after previous estimates had put the figure at about £40 million.

The business’s debts had been understated and the amount it was owed overstated, while there was a discrepancy in the way the firm valued its assets.

In October last year, Mr Johnson found that what he believed to be £28.8 million of cash in the bank was actually almost £10 million of debt, with £9.7 million drawn down on two ‘secret’ bank accounts.

According to the private equity firm that bought the company out of administration in January for just £5 million, there had been serious mismanagement in the run-up to its collapse, with suppliers left unpaid, broken ovens and extreme levels of corner-cutting, such as stripping butter out of the puff pastry.

The fraud investigation is continuing and the forensic investigators will be looking at more than the bank accounts to reveal the full picture of the firm’s finances.

Roger Isaacs, Forensic Partner at Milsted Langdon, said: “A lot has emerged from the investigations into Patisserie Valerie and it would seem that the financial mismanagement of the business has been so complex that even the company’s largest shareholder was completely misled about its financial health.

“When a business starts replacing butter in puff pastries to cut costs then you know things must be desperate.

As more details it will be interesting to see whether those perpetrating the fraud were stealing money from the business or, as surprisingly, is often the case, were simply trying to cover up mistakes and poor trading results for no direct personal benefit.”

Author: Roger Isaacs 5 July 2019