BT faces threat of another court case over Italian accounting scandal

News

US law firm intends to recoup shareholders' losses from the Italian accounting scandal, Ofcom bills BT £3.75m for inaccurate reporting and the Phones 4u court case drags on.

BT continues to be dogged by the Italian accounting scandal that surfaced in 2016 as it strives to focus on 5G and full-fibre builid-out – with some provisos.

According to a report in Daily Mail’s thisismoney.co.uk, Robbins Geller Rudman & Dowd plans to sue BT and some of its former and current senior executives over the Italian accounting scandal.

It took £6 billion – about 20% – off BT’s share price when the extent of the losses was revealed in January 2017, having been flagged by a whistleblower the previous summer.

The plummeting share price was triggered by the revised estimate of extent of the fraud at the start of 2017: in 2016, BT reported a £145 million non-cash charge related to “inappropriate management behaviour” that had triggered “historic accounting errors” at the Italian unit.

After KPMG was brought to investigate at BT Italia, the estimated costs soared to £530 million, bringing back painful memories of the last time the Global Services division had been involved in overstating estimated profits, leading to a £1.6 billion writedown in 2008-2009.

Investors want their money back

American investors want compensation for their losses, alleging that top management in the UK put the Italian unit under pressure to deliver overly ambitious targets as well as allegedly withholding pertinent information from the market.

The law firm’s first attempt at a law suit last year was thrown out, but since then investigations have continued apace, and Robbins Geller Rudman & Dowd has a track record: it clawed back £6 billion for investors after Enron collapsed in 2001 having used illegal accounting practices to cover up inflated earnings.

It seems the basis for the new proposed case against BT is that whereas the Italian accounting scandal was portrayed as the wrong-doing of local top managers who went to lengths to disguise their activities from the top brass in London, in fact it was caused by senior management in London imposing overly ambitious targets.

The defendants named in the lawsuit launched by Robbins Geller Rudman & Dowd are Ian Livingston and Gavin Patterson, two ex-CEOs of BT Group; former CFO Tony Chanmugam and the current Audit Committee Chairman, Nick Rose; the former head of BT Italy Luis Alvarez and the company itself as defendants.

Patterson was paid £18 million between 2013 and his dismissal in 2019, and Livingston was paid £32 million between 2008 and 2013, thisismoney stated.

BT denies the charges and says it intends to have them dismissed.

Inaccurate reporting to Ofcom

In July BT paid the UK regulator Ofcom £3,727,330 for submitting inaccurate financial reports that meant the operator paid lower administration fees than it should have between 2011 and 2015.

Part of Ofcom’s funding is through an annual administration fees from operators which is calculated from their revenues.

 Ofcom said in its report released last Friday that the operator’s cooperation had been “extensive and productive”.

Alleged collusion

Meanwhile, back at the High Court in London, the case brought against BT/EE, O2 UK and Vodafone UK by Phones 4u's adminstrator rumbles on.

Here there are claims and counter-claims of attempts at illegal price fixing by former CEOs, and accusations that the companies colluded to bring about the collapse of the retail chain Phones 4u.

Phones 4u’s parent company, the private equity firm BC Partners, went bust after the abrupt collapse in September 2014, owing £430 million to holders of Phones 4u’s high-interest bonds.

BCN had taken £200 million out of the company in a special dividend months ahead of its collapse. About 2,000 employees lost their jobs.