The tiny audit firm that signs off Sanjeev Gupta’s empire
From its unassuming base above a row of shops in Regent Street, an accounting firm that is unfamiliar even to seasoned auditors has signed off the books for scores of companies in Sanjeev Gupta’s GFG Alliance that collectively generate billions of pounds in revenue.
King & King, whose motto is “our client’s interests always come first”, audited the most recent accounts of more than 60 GFG companies in the UK, with combined revenues of nearly £2.5bn, a Financial Times analysis has found, far higher than previously reported.
The two-office firm, whose other base is in the shadow of Wembley Stadium, is a far cry from the large accountants normally hired to audit the financial statements of multibillion-pound corporate groups.
King & King is not well-known in accounting circles. Asked about the firm, two senior auditors at large UK challenger firms gave exactly the same response: “I’ve never heard of them.”
One person who has set foot in King & King’s central London offices described them as “small” and “dark”. “It smells of the 1950s,” he said. “Everything is at least 30 years old, with dark wooden tables and shabby furniture. It’s full of boxes with yellowing bits of paper spilling out.”
Yet the obscure chartered accountant has a pivotal role in checking the books across the GFG Alliance, the loose collection of family-owned steelworks and other industrial assets that make up Gupta’s now-teetering business empire.
The quality of those audits has come under renewed scrutiny as Gupta battles to save his empire after the collapse of Greensill Capital, the scandal-plagued finance company that built up more than $5bn of debt exposure to GFG.
Greensill frequently relied on King & King’s audits when lending to Gupta’s businesses, including when the finance company provided large taxpayer-backed coronavirus loans to groups linked to the metals magnate.
Unravelling accounts a ‘Herculean task’
Gupta has long faced scrutiny for his group’s impenetrable finances. GFG, which stands for Gupta Family Group, has never filed a consolidated set of accounts, which would offer visibility across a sprawling enterprise that employs 35,000 people around the world.
GFG, instead, comprises hundreds of separately audited companies, some owned by Gupta and others by his father Parduman, many of which have different end-of-year dates, making it even harder to get a clear snapshot of the overall group.
Since 2019, the metals magnate has promised to file consolidated accounts for his main steel and aluminium businesses in an attempt to silence his critics. Eighteen months after he first made this pledge, however, the financial statements are yet to land.
In December, Gupta blamed the delay on the pandemic, describing the audit as a “Herculean task” involving hundreds of people in dozens of countries. He told The Telegraph that the numbers should be published “early in the new year”.
In the meantime, creditors such as Credit Suisse, whose clients are braced for losses on more than $1bn of exposure to Gupta’s companies, have to rely to a large extent on the work of Milan Patel, a 58-year-old chartered accountant little-known in the audit industry.
Information asymmetry fear
An online biography of Patel, King & King’s managing partner, says that he joined the firm as an articled clerk in 1982 before rising through the ranks to become partner in 2000.
The profile lists golf, travel and volunteering as Patel’s hobbies, while his Facebook page shows that he follows an online group called “Chartered Accountants Are Kings Of Financial World” (sic).
Patel is the only chartered accountant listed on King & King’s page on the Institute of Chartered Accountants in England and Wales (ICAEW) website. The page shows one other “licensed professional” at the firm, which is small enough that it is not required by UK law to publish a profit and loss account.
Using such a small firm to verify the accounts of large entities raises questions about whether there is an “information asymmetry” between the company and its auditor, said Adam Leaver, professor in accounting and society at Sheffield university. Industry ethical standards prohibit auditors from regularly generating more than 15 per cent of their revenue from one client as a safeguard against loss of independence.
“It doesn’t seem commensurate with the size of the operation. You would expect to see, if not the Big Four, then at least a household name involved,” said another senior accounting source, who asked not to be named because he is a member of the ICAEW, the professional body that regulates King & King. “That would be a real alarm bell for me as a lender.”
The accounts of at least 19 GFG companies, 17 of which were most recently audited by King & King, are currently overdue, according to Companies House records. At least 24 GFG companies have changed their accounting period twice or more since 2019.
King & King and Patel did not respond to requests for comment.
Gupta’s companies are not King & King’s only controversial clients. The firm also signed off on the financial statements of BRS Investment Holdings UK, a company controlled by Bavaguthu Raghuram Shetty, the Indian founder of hospital operator NMC Health and finance firm Finablr, which are both mired in allegations of fraud.
King & King also audited Unimoni, a Finablr subsidiary, for the financial years ended in 2018 and 2019.
NMC is in administration and Finablr was bought for $1 in December. Shetty has said he is a victim of fraud, not a perpetrator. He is facing a criminal investigation in the United Arab Emirates.
‘Friends’ use King & King too
King & King was also instrumental in auditing or providing other corporate services to a loose network of companies that GFG employees called the “Friends of Sanjeev”.
While ostensibly independent from Gupta’s steel empire, his employees were often deeply involved in their administration, at times co-ordinating audits, signing loan documents on their behalf and even helping set up corporate websites.
An FT investigation last week revealed just how much revenue at Gupta’s commodities trading operation has at times comes from the so-called “Friends of Sanjeev”.
Several of these entities used to list their address at King & King’s Regent Street offices at the same time that they ordered metal from GFG businesses that the firm also audited, such as Sheffield-based Speciality Steel.
King & King is not the only auditor of Gupta’s companies, which have called on a number of other small and midsized firms.
HW Fisher audits Liberty Commodities, the UK arm of a Singapore-headquartered metals trading business that is part of GFG.
The London-based accountant with 26 partners and about 250 staff describes itself as “a top-25 UK chartered accountancy firm”. It previously carried out scores of audits for other GFG companies but is no longer involved with most of the companies it used to monitor. HW Fisher did not respond to a request for comment.
Slaven Jeffcote, a two-partner firm in Mayfair; John Cumming Ross, a Harrow-based firm boasting “business links in India”; and Prime, a three-office firm in England’s Midlands, are also on call for various entities within the Gupta empire. Slaven Jeffcote and John Cumming Ross did not respond to requests for comment. Prime declined to comment.
Also on Gupta’s roster is MHA MacIntyre Hudson, the midsized firm that took over the audits of FTSE 250 miners Ferrexpo and Petropavlovsk after Deloitte and PwC resigned, respectively, amid concerns about the companies’ governance.
MHA resigned as auditor of Liberty Precision Tubes in 2019 after a disagreement over the size of an asset writedown, according to a Companies House filing. King & King has taken over the audit. MHA, which audited the most recent accounts of at least six other Gupta companies, declined to comment.
Gupta does not rely solely on accounting minnows. Liberty Merchant Bar, his Scunthorpe-based steel manufacturer, has been audited since 2015 by Mazars, the UK’s seventh-largest auditor. PwC, the UK’s largest accountant, audited Gupta’s UK-based bank Wyelands until November 2019 when it resigned citing the potential for a perceived conflict of interest.
GFG said: “GFG Alliance is an alliance of companies rather than a consolidated group. Our businesses use a range of auditors around the world appropriate to their size.”
But a disparate corporate group that uses several small advisory firms can raise red flags. A senior restructuring executive said people should be alert to “businesses like this where they’re big, there’s no heart to them and you’ve got a proliferation of small advisers so that no one has a lens on what’s really happening”.