PL charge City for alleged breaches of financial rules

[paulchapo]

Yes, I think so. Take the Etihad sponsorship issue. Our accounts say “Etihad sponsored us £X.” The auditors look at the contract, tick that box, look at the bank statements, see £X coming in to City’s bank accounts from Etihad, tick that box and move on to the next bit.

Meanwhile, in a different accountant’s office, Etihad’s accounts say “We sponsored City £X.” Their auditors look at the contract , tick that box, look at the bank statements, see £X going from Etihad to MCFC, tick that box and move on to the next bit.

Given that our accounts mirror Etihad’s in this respect I don’t see how you can establish fraud without some actual direct, first hand evidence that the payment from Etihad to MCFC was actually disguised owner investment rather than what it appears to be on the face of the documents. Someone who says, in effect, “I know what the accounts say but I was in the meeting where the question for discussion was how we camouflage ADUG putting £X into MCFC without UEFA getting wind of it, and that’s what we actually did. I know because I was there.”

Maybe they have that evidence. But I don’t see how a paper trail alone can possibly get them there. Which, as I understand it, is all they have.

Interesting but as you say with no actual hard proof it's useless. Otherwise any old ex employee with an axe to grind could say they witnessed all sorts of shenanigans, it's just hot air.

 

[Keith Moon]

On these allegations, in my view, even that level of "whistleblower" evidence wouldn't suffice.

Bottom line in a case like this is that the PL has to establish a proven, technical and factual conclusion that the original accounting was actually wrong (either deliberately or by negligence).

This can probably only be achieved in this case by an expert witness being more convincing than the defence expert witness having taken account of the written audited accounts and supporting docs that historically exist, factual witnesses and non-audit documents/evidence.

So, I'd say you'd need at least one witness of fact who supports the case with first hand experience of the matters in question actually being executed (not merely discussed or considered) and who would be potentially self-incriminating themselves in admitting their professional involvement in those matters. All pretty unlikely.

You'd also need documentary evidence of the execution of that scheme AND, therefore (or otherwise) a conclusion by the tribunal that defence witnesses were lying or unreliable and had, in some way and to the extent that they had been involved in the audit, misled the auditors. This doesn't seem to be a case where the judgment could fudge that issue by saying they had "faulty recollections". Some of the matters are not that old.

So whilst this sort of conclusion has occurred in some rare cases it feels a very high hurdle for the PL even on a balance of probabilities standard. All of this assumes the process in place is fair and in line with English law which I do expect it to be.

My only fear is that we're up against a panel of 3 x Prof. Dr. Ulrich Haas.

 

[Chris in London]

On these allegations, in my view, even that level of "whistleblower" evidence wouldn't suffice.

Bottom line in a case like this is that the PL has to establish a proven, technical and factual conclusion that the original accounting was actually wrong (either deliberately or by negligence).

This can probably only be achieved in this case by an expert witness being more convincing than the defence expert witness having taken account of the written audited accounts and supporting docs that historically exist, factual witnesses and non-audit documents/evidence.

So, I'd say you'd need at least one witness of fact who supports the case with first hand experience of the matters in question actually being executed (not merely discussed or considered) and who would be potentially self-incriminating themselves in admitting their professional involvement in those matters. All pretty unlikely.

You'd also need documentary evidence of the execution of that scheme AND, therefore (or otherwise) a conclusion by the tribunal that defence witnesses were lying or unreliable and had, in some way and to the extent that they had been involved in the audit, misled the auditors. This doesn't seem to be a case where the judgment could fudge that issue by saying they had "faulty recollections". Some of the matters are not that old.

So whilst this sort of conclusion has occurred in some rare cases it feels a very high hurdle for the PL even on a balance of probabilities standard. All of this assumes the process in place is fair and in line with English law which I do expect it to be.

Yes, I agree, evidence from a whistleblower is necessary but not necessarily sufficient in itself to demonstrate fraud - which, as discussed previously, they would have to prove in relation to all but the post 2017 charges. I can’t see how the tribunal could possibly fudge this if they find the charges proven - they would have to find, on sufficiently convincing evidence, a dishonest conspiracy involving both the club and the contracting party, at the highest levels in either case. And they would have to do that in pretty much all but the non-cooperation charges.

Which takes me back to the question we discussed earlier. When do you run a case that has so many legal flaws? Ignorance? Try-on, hoping to pressure the other side into cutting a deal? Pressure from the higher ups?

In my view it could be any of those, but each is considerably more likely as an explanation than “we have a whistleblower.”

 

[slbsn]

Yes, I agree, evidence from a whistleblower is necessary but not necessarily sufficient in itself to demonstrate fraud - which, as discussed previously, they would have to prove in relation to all but the post 2017 charges. I can’t see how the tribunal could possibly fudge this if they find the charges proven - they would have to find, on sufficiently convincing evidence, a dishonest conspiracy involving both the club and the contracting party, at the highest levels in either case. And they would have to do that in pretty much all but the non-cooperation charges.

Which takes me back to the question we discussed earlier. When do you run a case that has so many legal flaws? Ignorance? Try-on, hoping to pressure the other side into cutting a deal? Pressure from the higher ups?

In my view it could be any of those, but each is considerably more likely as an explanation than “we have a whistleblower.”

Aside from trying to cut a deal, I agree with all that and don't know. I don't think this is a play for a settlement. Too far gone in my view. Of course, the other explanation, is our analysis on what they need to make out is well wide of the mark.

 

[richards30]

My only fear is that we're up against a panel of 3 x Prof. Dr. Ulrich Haas.

But if we have proof then it’s irrelevant mate?

 

[applecentral]

As a former auditor, albeit many years ago and probably out of touch with modern practice, I'd like to clarify something. Our accounts do have to give a 'true and fair view' of our financial transactions and situation. But there's no definitive answer to, or statutory definition of, what 'true and fair' is.

But generally, for an auditor not to confirm that accounts were true and fair, there would have to be a material issue, not a few quid here or there. So even if the auditors knew about the alternative Mancini contract and felt that it should have been reported by City, in their accounts, I very much doubt they would qualify the accounts. I doubt they'd even know about it though, because it was a personal contract between Mancini and an unconnected third-party.

For a company like City, or an even bigger one, the auditors won't check every single transaction. They might satisfy themselves as to the adequacy of the financial systems for accurately recording income and expenditure and would examine relevant financial controls. A key one is whether an individual could both initiate, authorise and receive a large payment, without a second or multiple persons checking.

They most likely would (certainly in my day) have checked the larger items and that would include Etihad's sponsorship. So if our accounts showed £50m revenue from Etihad, they'd probably check that £50m was actually received. That might a single payment, or multiple payments. As long as they could track that £50m from the bank statements to the P&L account, I doubt they'd enquire much further.

But if they could only see £10m of that claimed £50m, they'd ask questions. The answer from the CFO might be that we're waiting for the other £40m,which was due shortly. I suspect they'd want to see that £40m come in before they expressed an opinion, or at the very least, have assurances from Etihad that this payment was due, relates to the period under review and a good idea of when it was due to be paid. They'd then have to make a decision as to whether the accounts were 'true and fair' (because £40m would be material) and even if they did sign the accounts off, they'd probably demand evidence of it arriving and maybe make some comment, or insist City made a relevant comment in those accounts.

Another scenario might be Etihad paying us £10m and the other £40m being from ADUG. They would presumably then question whether that was equity funding, and should therefore go into the balance sheet, rather than the P&L account. That would be subject to discussions with City senior management but I'd say the likelihood is that they would insist on it being reclassified, as it's material.

I think someone said earlier in this thread that it wasn't necessarily what was done, but what the intent was that would determine fraud. The valuation of stock affects profit. This has to be valued at the lower of cost or net realisable value, but cost may have a number of different components. It may be a very subjective judgement on what NRV is but it could be that a company is valuing stock, which it knows is completely worthless, at cost. That's likely to be fraudulent. There have been many cases where revenue from contracts signed or meant to be signed with customers has been knowingly overstated.

A high-profile case involves the software company Autonomy, who used to sponsor Spurs. https://www.bbc.co.uk/news/business-47691083. I think Mike Lynch is still fighting extradition but the UK courts have broadly supported HP's view that he and his CFO were guilty of fraud.

So just because a set of accounts aren't correct to the nearest pound, doesn't mean they aren't showing a true and fair view. And even if they're held not to be a true and fair view, there could be other reasons beyond a deliberate fraud why they might not be.

A very good post sir!

 

[applecentral]

You are repeating yourself a thousand times with what you as a non blue want to be true

Tell ‘em Kaz!

 

[Ric]

Which takes me back to the question we discussed earlier. When do you run a case that has so many legal flaws? Ignorance? Try-on, hoping to pressure the other side into cutting a deal? Pressure from the higher ups?

Is it possible that the sheer breadth of the charges is largely due to our non-compliance? I.e. the PL don’t necessarily think we’ll be found guilty on many of the alleged breaches, but decided to charge us regardless as we wouldn’t provide the evidence they requested? Perhaps making a point about how dimly they viewed our refusal to co-operate?

 

[slbsn]

Is it possible that the sheer breadth of the charges is largely due to our non-compliance? I.e. the PL don’t necessarily think we’ll be found guilty on many of the alleged breaches, but decided to charge us regardless as we wouldn’t provide the evidence they requested? Perhaps making a point about how dimly they viewed our refusal to co-operate?

I don't read the situation that way

 

[LeonardoDaVnci]

I've seen some posts saying this will all be resolved in a few months, others saying four years. Do we have any reliable sources re this ? and has the "hearing" actually started yet ?. I can predict with 100% certainty that as we approach season end if LFC are in 5th position Scouse Sports News will start the olde classic.... "if City are expelled from the CL then LFC will take their place"...absolute guaranteed...
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