Court rejects £40bn life company cover up claim

An ex-Scottish Widows whistleblower who claims auditors have helped life companies cover up £40bn in guaranteed annuity rate (GAR) liabilities has had his request for a judicial review turned down.

Graham Senior-Milne (pictured), a former auditor, says some of the biggest names in accountacy have been involved in covering up GAR liabilities at nine unnamed life offices for at least a decade.

He accuses the Institute of Chartered Accountants in England and Wales (ICAEW) of failing in its duty to investigate the issue, and had called for a judicial review into the actions of the professional body.

But his request, the second he has lodged, was turned down yesterday at Leeds Administrative Court on the grounds it was too generalised.

Senior-Milne says he will apply to the Court of Appeal to have the ruling overturned.

The complaint builds on an earlier claim by Senior-Milne against the ICAEW, which he says failed to investigate his claim that Big Four firm PwC helped cover up Scottish Widows' GAR liabilities when Lloyds took it over in 2000.

Lloyds bought Scottish Widows, then a mutual, for £6bn. Senior-Milne claims Lloyds sought approval from policyholders in 1999 to pay £4.5bn in cash for Scottish Widows and keep £1.5bn in an "additional account", which would be used to pay terminal bonuses when policies matured.

However, Senior-Milne says Lloyds knew prior to the aquisition that the £1.5bn would be needed to pay Scottish Widows' GAR liabilities, but it kept the information from policyholders.

The Equitable Life case, which was before the Court of Appeal at the time and in which the company was eventually forced to honour its GARs, would have made this obvious to Lloyds, he says.

Following the Equitiable Life ruling, the £1.5bn in Lloyd's "additional account" was used to pay GARs.

However, Senior-Milne says Scottish Widows policyholders were forced to approve the demutualization "on the basis of incomplete and misleading information".

"At no time were [policyholders] informed of the size and nature of the GAR problem," Senior-Milne told Judge Behrens.

Senior-Milne says Lloyds and Scottish Widows purposefully hid this information, and accuses auditors PwC of assisting the cover-up.

He says: "I have given the ICAEW enough information to investigate the facts and they have not. The judge was shutting me up."

A spokesperson for the ICAEW says the body cannot comment on the case at this stage.

It adds: "ICAEW takes these responsibilities extremely seriously and undertakes them in a fair, accountable and transparent manner."

PwC and Scottish Widows declined to comment on the case.