The KPMG report on Winnifrith and Rivington Street Holdings

(We have consulted our own sources and are satisfied that this document is authentic)

Introduction and executive summary

Background

Until October 2010, T1ps Investment Management Limited managed the Tips Small Companies EIS Fund (“the EIS Fund”). In March 2012 an investor in the EIS Fund complained to the UK Financial Ombudsman Service in respect of T1ps Investment Management Limited for failing to deliver a necessary EIS certificate that was essential to claim the eligible tax benefits in relation to his investment in the Fund. Subsequently, in October 2010 the business and clients of T1ps Investment Management Limited were novated to T1ps Investment Management (IOM) Limited. Satisfactory responses have not been forthcoming to resolve the complaint of the investor, nor the enquiries of the regulators; the Financial Supervision Commission in the Isle of Man and the Financial Services Authority in the United Kingdom.

Accordingly, Rivington Street Holdings plc, the group holding company of T1ps Investment Management (IOM) Limited , engaged KPMG LLC to:

– report on the cash flows in respect of the investment by the EIS Fund from the initial transaction and to seek to establish the final destination of the funds.

– review and report on Rivington’s internal findings and to seek to establish validation from internal and external sources .
Work performed

We obtained copies of emails and attachments from parties engaged in the investment process, with the objective of establishing the factual basis of the investment itself and to establish the actual cash flows that had taken place. The evidence obtained includes a Placing Letter and bank transfer instructions to the escrow agent, Welbeck Associates, together with the bank transfer instructions from the escrow agent to the investee company, Commercial Tyre Solutions Limited.

We identified four key individuals with a clear involvement in the investment .Each was supplied by KPMG LLC with a list of questions in advance of a meeting in person or by telephone. Each individual agreed to respond to the questions. Each was requested to provide any documentary evidence of any kind to support their responses.

Findings

We have established that a payment of £100,000 was made by Woodside Corporate Services Limited (on behalf of the Tips Small Companies EIS Fund) on 13 August 2010, as a response to a Placing Letter prepared by Rivington Street Corporate Finance Limited. The Placing Letter was in the name of Commercial Tyre Solutions Limited and addressed to the Tips Small Companies EIS Fund in respect of 12,853 1p shares at a premium of 777p per share.

The investment proceeds were paid to an escrow agent – Welbeck Associates, who in turn transferred the funds to Commercial Tyre Solutions Limited.
The shares identified in the Placing Letter were not issued. The necessary EIS certificate was not issued.

Commercial Tyre Solutions Limited went into administration on 27 April 2011. It appears that tangible assets owned by Commercial Tyre Solutions Limited have not been accounted for to the administrators. It is not possible to confirm that the funds received by Commercial Tyre Solutions Limited have been adequately accounted for.

The directors of Commercial Tyre Solutions did not meet their obligations agreed under the Placing Letter. Pathway One plcwas alleged to have been interjected as an intermediate company in the investment structure, but no clear conclusion or documented outcome results from its introduction.

Each of the parties questioned provided a verbal explanation of their role in the investment process. None has provided documents to support their accounts of the events surrounding the investment, with the exception of Peter Greensmith. No two accounts are consistent to a degree that would lead to a conclusion that they reflect a true and complete account of the transaction.

The key points in the explanations of the parties are:

Tom Winnifrith – major shareholder in the Rivington Group, senior executive director and senior investment adviser. He accepts that he made the investment decision. He is certain that the proposal was made to him in person by Paul Rewrie. He accepts that no formal due diligence was undertaken but insists that rigorous scrutiny was applied during the Rewrie proposal. He confirms that the investment was a direct share placing. He maintains that Rewrie proposed the investment as EIS-eligible. He denies any knowledge of Pathway One in the structure.

Paul Rewrie – a director of Commercial Tyre Services Limited and Pathway One plc from September 2010. He states that he approached Peter Greensmith and that David Haines, the shareholding director of Commercial Tyre Services Limited, presented the proposal. He denies any prior knowledge of EIS relief. He has no knowledge of how or why the EIS Fund was put forward as the investor. He states that he had no knowledge of the source of the invested funds. He states that Rivington Street Corporate Finance was the architect of the investment terms. He knew the proposed share placing was not compatible with the company’s capital. He states that he was not aware of or party to the introduction of Pathway One plc into the transaction.

Peter Greensmith – director and chief executive of by Rivington Street Corporate Finance Limited . He states that Paul Rewrie presented the investment proposal personally to him in June 2010. He knew that Paul Rewrie had approached Tom Winnifrith. He took no further part in the investment proposal. He, as Rivington Street Corporate Finance, became the placing agent for the transaction. He states that he received instructions fro Tom Winnifrith to prepare the investment documentation. He states that emails (not provided) between Tom Winnifrith and Paul Rewrie clarify and confirm agreed terms, investment structure and EIS eligibility. He confirms a standard placing letter, modified for the terms, was issued by Rivington Street Corporate Finance. He is insistent that neither he nor Rivington Street Corporate Finance had any further involvement of any description after the completion of the placing. See also ‘Greensmith emails’.

Russell Darvill – director of Pathway One plc and accountant to Rivington Group companies. He states that he had no involvement with the initial investment proposals in Commercial Tyre Services Limited. As a director of Pathway One plc together with Paul Rewrie, he has no knowledge of what loan or investment terms bind Pathway One plc to the EIS Fund or to Commercial Tyre Services Limited. He states that he relied on Paul Rewrie in all respects in relation to the loans disclosed in the audited accounts. He states that time pressure to sign the financial statements for the year ended December 2010 led him to sign the accounts without an understanding of the assets and liabilities relating to the Commercial Tyre Services Limited transaction.

Greensmith emails – we have been provided with a string of emails dated 13 July 2010 to 13 August 2010 between Tom Winnifrith, Paul Rewrie and Peter Greensmith, being amongst the few documents showing contemporaneous accounts of the investment proposals. Pathway One plc was an active part of the investment plan from at least 13 July 2010. Paul Rewrie was aware of the plan from at least 14 July 2010. Terms were agreed by Rewrie and Winnifrith on 29 July 2010 including the involvement of Pathway One plc. Rewrie confirmed the eligibility of the investment in Commercial Tyre Services Limited
for EIS relief. The terms of the Placing Letter were agreed by Paul Rewrie. The terms of the Placing Letter were contrary to the terms agreed between Rewrie and Winnifrith.

Other matters
The Placing Account for the initial investment was in the name of Welbeck Associates and specified as such in the Placing Letter. The funds were paid to that account on 13 August 2010. The financial statements of Pathway One plc containing the alleged revised arrangements for the investment into Commercial Tyre Services Limited were audited by WelbeckAssociates .
There is no explanation as to why the terms agreed by Rewrie and Winnifrith on 29 July 2010 were not reflected in the Placing Letter of 12 August 2010, the latter having also been agreed by Paul Rewrie.

The administrator of Commercial Tyre Services Limited has advised that he had no co-operation from David Haines and has no records to identify creditor payments or asset disposals.

Preliminary conclusions

The emails provided by Mr Greensmith contain exchanges between Paul Rewrie and Tom Winnifrith that demonstrate that the recollections of each is incorrect in several material respects:

Tom Winnifrith denied any knowledge of Pathway One plc until recent events had revealed its existence. The emails establish clearly that Tom Winnifrith was aware of and proposed to utilise Pathway One plc as an investment vehicle for Commercial Tyre Solutions Limited.
Paul Rewrie denied any knowledge of Pathway One plc before the receipt of the funds by Commercial Tyre Solutions Limited on 13 August 2010. The emails establish that he was aware of the existence and purpose of Pathway One plc from at least 14 July 2010. He denied any understanding or knowledge of the EIS Fund or EIS relief generally. In the email dated 28 July 2010 he explicitly confirms that the investment [in Commercial Tyre Solutions Limited ] is available for EIS relief.

Paul Rewrie denied any knowledge or involvement in the terms of the investment in Commercial Tyre Solutions Limited . By email dated 12 August 2010 Peter Greensmith sent a draft Placing Letter following a discussion seeking confirmation that the calculation was correct.

There are three potential areas for a fraudulent transaction.
that the initial investment proposal was a fraud on the EIS fund
that the proceed of the investment were fraudulently expended by Commercial Tyre Solutions Limited or its officers or employees
that residual assets were fraudulently disposed of before the appointment of the administrators
There is insufficient evidence to reach a conclusion as to whether there have been any fraudulent activities.
It is undisputed that the investment in Commercial Tyre Solutions Limited was not subjected to any formal due diligence or independent review. The decision to invest was taken by Tom Winnifrith. The involvement from an investment committee, if any, appears to have been peripheral.

No formal responsibilities or processes were in place to ensure that the agreed investment was fully executed. No formal responsibilities or processes were in place to safeguard the assets of the EIS Fund.

Next steps

To clarify the positions of Winnifrith and Rewrie, the evidence pointing to a different account of events should be presented to them and an opportunity given to amend their account or counter the evidence.
Consideration should be given to the further investigation of the actions of David Haines in expending the invested funds and possible disposal of the tangible assets of Commercial Tyre Solutions Limited .
Consideration should be given to the further examination of the role and actions of Russell Darvill and Paul Rewrie as directors of Pathway One plc.

Limitations

Our work does not constitute an audit and does not provide the same level of assurance as an audit. The verification performed is as stated in this report and no other verification should be inferred.
This is an interim report and we reserve the right to amend or change any findings or conclusions where further or better information comes to light.

© 2012 KPMG LLC, an Isle of Man limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (‘KPMG International’), a Swiss entity. All rights reserved.