Serious Fraud Office says those held have been questioned over alleged fraud at cafe chain

Five people have been arrested and questioned over alleged accounting fraud at Patisserie Valerie, in a dramatic escalation of the investigation into the cafe chain’s financial implosion.

According to a statement from the Serious Fraud Office (SFO) issued over the weekend, the arrests took place last Tuesday in a joint operation with Hertfordshire, Leicestershire and Metropolitan police services after the discovery of a multimillion-pound gap in the company’s accounts late last year.

The SFO did not disclose the names of those arrested or what they had been detained for, although said it was conducting inquiries into the role of individuals in the firm’s slide into administration. The company went bust in January, sparking the loss of 900 jobs when 70 of its almost-200 stores and concessions closed.

Luke Johnson, the cafe chain’s former chair and a columnist for the Sunday Times, was not among those arrested, according to an article in the newspaper. Johnson, who was the firm’s largest shareholder when it failed, broke his silence over the affair earlier this month in a column, saying the incident had left him physically ill. Johnson indicated that he might be a witness in a serious criminal investigation.

Despite a desperate attempts to rescue Patisserie Valerie, including lending £10m of his own money to the company, the firm fell into administration after a black hole in its accounts worth £94m was unearthed amid accusations of fraudulent activity that hid its existence.

Johnson said he had been tricked by a fake picture of its financial health by others, while he also questioned a rosy bill of health given to the company by auditors Grant Thornton. He had previously said the discovery of the alleged fraud was like entering a “nightmare parallel universe”.

Chris Marsh, Patisserie Valerie’s finance director, was arrested and bailed following the accounting scandal. The SFO has previously said it opened a criminal investigation earlier this year but has not commented further.

The chain started life in London’s Soho in 1926 and, at its height, employed about 3,000 staff across almost 200 outlets and was once valued at £450m.

Patisserie Valerie was bought out of administration in February by an Irish private equity firm, Causeway Capital Partners (CCP) for £5m, in a move that helped to save around 2,000 jobs and kept 96 outlets open.

The Dublin-based owner last week laid bare the desperate state of the company it inherited from the previous owners, including a cost-cutting approach so severe that managers stopped using butter in puff pastry.

CCP described its shock at finding broken ovens, unpaid suppliers and a leak in the roof at a key bakery site. Matt Scaife, a partner at CCP, said it was clear the company had been “seriously mismanaged” in the run up to its collapse.

Forensic accountants from KPMG concluded in March that the accounts had been overstated by approximately £94m, after previous estimates had put the figure at about £40m.

The company’s debts had been understated and the amount it was owed overstated, while there was a discrepancy in the way the firm valued its assets, KPMG said at the time.

In addition to the SFO, the case attracted the attention of several other watchdogs, including the Financial Reporting Council, the Insolvency Service, the Aim market regulator and the HMRC fraud investigation service.

In a statement, an SFO spokesperson said: “On Tuesday 18 June, as part of a joint operation with Hertfordshire, Leicestershire and the Metropolitan police services, five individuals were arrested and interviewed in connection with the Serious Fraud Office investigation into individuals associated with Patisserie Holdings PLC.”