Friday, July 13, 2012

The Vegas Trust - The Fraud that had everything! Part One.

In the 1980s under Margaret Thatcher's attempts to open up the London market to the beneficial influence of international capital flows, London became the fraud capital of Europe. Every dodgy con-man, snake-oil salesman, share pusher, bunko merchant, Ponzi scheme promoter, and even US mafia-connected securities dealers, boiler room operators and 'paper hangers' flooded into London to take advantage of the big financial free-for-all that Mrs Thatcher's philosophies regarding free markets would unleash.
The Vegas Trust case for me probably encapsulated everything that was wrong with the entire financial sector and those who regulated it, operated it, legally advised it, judged it, and yes, who policed it, sadly.
It involved straightforward criminals, dubious investment promoters, bent solicitors, amoral barristers, pathetic DTI officials, cowardly senior City bankers, a bunch of terrified solicitors in a City law firm, some arrogant and incompetent middle-ranking police officers, off-shore companies and trusts, and one of the biggest perversions of the course of English justice that I had ever personally witnessed. After the Vegas Trust case, I no longer believed that literally anything was sacrosanct, and that everything could be bought and sold, including the highest levels of the English legal and judicial system.
The case involved a dodgy Dutch 'investment promoter', a British metals broker and a bent solicitor. They came up with a scheme to solicit investments from public investors in a pooled commodity futures trust fund, which they christened 'The Vegas Trust' and which they would ostensibly trade and make a profit, which they would then distribute among the investors.
Where was the harm in that you might well ask?
Well, under the law as it then stood, The Prevention of Fraud (Investments) Act 1958, (PFI) prohibited such investment schemes, on the grounds that they were simply too risky for ordinary investors to understand and appreciate the risks involved, so they were outlawed.
The law also outlawed the possession or the circulation of any document soliciting any such investment, the view being that if the existence and possession of such documents were prohibited, then they couldn't be sent to unwary investors.
It is one the biggest ironies to me that in its time, the PFI Act was roundly denounced at the time of the introduction of the Financial Services Act, but with the benefit of a lot of very cynical hindsight, I now realise that it was a really rather sensible and simple law, and should have been left well alone.
The law did permit the sending of such circulars to certain legally-defined professional investment advisers, under the proviso that the person doing the sending would themselves be authorised to deal in securities by their possession of a licence granted by the DTI.
In or about late 1983, what this bunch of adventurers decided to do was to create a document which they hoped would somehow allow them to get their investment proposals out into the public domain, but appearing all the while to possess a spurious claim to be complying with the law. It was a transparent attempt to circumvent the criminal law, it was deliberate, it was blatant, it was dishonest, and it was typical of the kind of investment scam of which so many were then proliferating in London.
The metals broker, was really a patsy in this fraud, albeit he knew exactly what was intended to happen and what was going to go on. The real fingers in the pie were the Dutchman and his close friend the solicitor, a flamboyant man who was a partner in a City law firm in Fleet Street. It was he who organised and set up the relevant off-shore constructions designed to give the scheme an air of sophistication, while crucially assisting in providing a major barrier to any meaningful investigations that might take place. The money would be held in a Trust called the Vegas Trust, whose head offices were claimed to be in Panama, although it was really registered in Guernsey, one of the many off-shore tax havens which sheltered a wide variety of dodgy investment promoters in those days. The company created to administer the affairs of the Trust was named the Baraquesa Finance Corporation, and registered in Panama.
It was the solicitor who brought in a seedy former fund manager to be the Managing Director of the Baraquesa Finance Corporation, and who also introduced a near bankrupt Peer of the Realm as Chairman. The intention was to pay this hapless man a fee of £60,000 per annum for the use of his name and title, a sum which he was pathetically grateful to accept.
Together, these characters drew up a circular which contained the usual inflated puffery and investment blurb, and stating that the Trust funds would be audited every 6 months by a leading City accounting firm, just to give an added air of authenticity.
The plan then was to seal the document inside a plain brown envelope, with the following words printed in red on the front;
"... WARNING - Opening this envelope could be a criminal offence if you are not authorised to do so. Please pass this envelope unopened to your professional adviser..."
This envelope was then placed inside a second larger envelope which was then addressed to a list of names they had acquired from a City listing service of City Liverymen.
Before sending off these letters however, the solicitor sought advice from Leading Counsel as to the legitimacy of such an action. This was an extremely clever move and it nearly had the desired effect, and had the letter not landed on the doormats of certain august City figures, it might have succeeded.
He chose a very eminent and senior commercial silk who would later go on to achieve highly elevated status indeed in the English legal firmament. They made an early appointment with this man at his chambers in the Temple and they took the letters down to show hm.
What follows was admitted to me by the Metals Broker when he was later arrested. He stated that the eminent barrister made the following observations. When asked to opine on the legality or otherwise of the proposed letters he said;
"... The law in this regard is a grey area. While what you propose may indeed be in breach of the Act, the chances of the DTI doing anything about it, even if they were to find out about it, is highly unlikely. If I were you, I would give it a try and see how you get on...’
I will return to this point later.
The letters were posted, and I want you to imagine the scenario. A City liveryman, who could have been and often was a non-City practitioner, being doctors, academics, accountants and other assorted members of the Great and the Good, is having breakfast. The letter lands on his mat. He opens it, only to be confronted with the proviso not to open the letter. I can imagine that hundreds of men nearly burst a blood vessel tearing open the second envelope to read its contents, and it had the desired effect, because a lot of people did send in money to open an account in this entirely illegal enterprise.
Unfortunately for the Vegas Trust promoters, two of the letters landed on the mats of very senior City bankers indeed, the then Chairman of Kleinwort Benson Ltd, and the Director General of the Council for the Securities Industry, who immediately complained to Cecil Parkinson, the then Minister at the DTI about the marketing practices of ‘The Vegas Trust', as being the very kind of dodgy scams the City was trying to stamp out! The letters were immediately passed to the DTI Investigations Branch for action.
The DTI Officials were perturbed by this document. They couldn't do what they would have done in most cases, and quietly ignored it, hoping it would quietly fail after a few months and after a few stupid punters had been fleeced. This had been referred to them by their own Secretary of State who was demanding action.
On the other hand, this case contained certain dangerous ramifications, because it looked like the villains had come up with a rather novel wheeze, and there was significant unwillingness to take on the investigation for fear that a prosecution might possibly fail, which would adversely influence the promotion prospects of the officer recommending the prosecutorial course of action! In the file which I was later allowed to inspect, the following comment appeared.
"...‘While the persons involved are obviously in breach of the PFI Act 1958, it is clear that they have identified a novel way of offending against the Act. If a prosecution was brought which was subsequently unsuccessful, the officer concerned could be deemed to have made an error of judgment which might adversely affect their future career...
Let us therefore pass this matter to the police for further action. If they are successful, this Department will be deemed to have made a successful judgment. If they are unsuccessful, any criticism will attach to their handling of the case, and will not impact upon this Department..."
So the ever-vigilant heroic regulators of the DTI came up with their own clever scheme. They would pass the papers to the Fraud Squad to investigate. In their covering referral letter, they used the excuse that '... ‘....however, though Vegas’s head office is, according to its literature, in Panama, it is not a company registered there. Without proof of incorporation the Department cannot exercise its investigatory powers...and your assistance is sought...’
It took me one visit to the offices of the Vegas Trust to ascertain that the Trust was registered in Guernsey, so well within the investigatory remit of the DTI. How did I know? It was written in gold on the window of the offices! However, the DTI regulators were not well known for getting out of their offices to conduct such complex investigations, so the case was now firmly in the hands of the Fraud Squad.
Search warrants were sought and executed, and all the company's papers and documents taken back to the Fraud Squad. The Dutchman went on the run to Holland and never returned. The solicitor wrote to all the investors informing them that the precipitate actions of the police meant that the company had to cease trading and all their investments should now be considered as lost. Threats of writs for damages were received by me at the Yard, and I began to investigate the dealings of the Vegas Trust.
The case had already acquired the status of what our US detective colleagues would have called 'High JIngo', which meant that from now on, it was going to have dirty politics written all over it!
I had already learned that a corrupt solicitor can cause difficulties out of all proportion for investigations of fraud cases. I had experienced at first hand the brick wall thrown up by the use of offshore tax havens to criminal investigators. I had witnessed, yet again, the spinelessness of the regulators in the DTI, and I had seen how a commercial barrister would be willing to give any legal advice which his client wanted to hear, for a fat fee, naturally. Above all, I was beginning to learn that London, as a financial centre, was wide open for every kind of fraud going, and that all the different branches of the professional services providers were perfectly happy to play their part in a thoroughly dishonest enterprise, just by turning a blind eye to the possible consequences of their actions.
In the next posting I shall deal with the investigation and its impacts.

1 comment:

AbogadoNZ said...

Another round in the what is quickly turning out to be a thorough denunciation of 'The City'. When I am next in UK I look forward to having a beer and learning more. I presume the unnamed are still alive. I will gladly remedy that situation if asked.