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Prime Bank/HYIP Fraud
from http://www.sfo.gov.uk/publications/speechesout/sp_29.asp?id=29
Speech by Rosalind Wright CB,
Director of the Serious Fraud Office
At Barclays Bank World Head Office Presentation Theatre,
54, Lombard Street,
London
On 21st March 2002 (Organised by the Institute
of International Banking
Law & Practice)
1. In the Emperor's New Clothes, the familiar tale by Hans Christian Anderson,
the unscrupulous tailor was able to persuade the Emperor to parade naked
through the streets by way of a confidence trick familiar to many in this
room today: he persuaded him that the invisible suit of clothes could only
be seen by the cognoscenti, superior classes of persons, the upper echelons.
The emperor was taken in; so were the multitudes who flocked to see the emperor
in all his non-existent finery and did not want to expose themselves as discerning
members of the glitterati. It took a small, guileless child to see through
the deception and blow the gaffe.
2. There are many dupes out there who don't want to admit that they don't understand
what they are being sold. That the precious secret being made available to
them and them alone, which, up till then, has only been made available to
banks to make money between themselves, doesn't have substance in reality;
that it is a sham; an invisible suit of clothes.
3. Who wants to admit they are ignorant? When a honey-tongued salesman, or "investment
adviser" spins them a line that is fully of impressive financial jargon,
preferably peppered with reassuring words such as "prime", "guarantee", "investment
program", who has the guts to be like the little boy and say "But
the emperor is stark naked!" and reveal to the salesman that he is not
one of the cognoscenti?
4. Let me tell you another cautionary tale: A few years ago, a firm called
David Coakley Ltd which dealt in over-the-counter futures and options, set
up a dealing room in the City of London. They opened their doors to members
of the public: anyone who wanted to deal in futures and options, over the
counter, could come in and deal. Indeed, for a bit of free advertising, they
invited journalists to come in and try their luck , using a hypothetical
sum of money, to see how much they could make on this volatile and precarious
market. Many journalists made a very large profit, dealing on a pretend basis
with the hypothetical money and wrote up their experiences enthusiastically
in such sophisticated financial journals as the Daily Mail and the Mirror.
5. Punters piled in. They, unfortunately for them, didn't use sham money or
pretend transactions: they used their own money and lost it. Not only did
they lose it, they were made to pay enormous additional sums by way of margin
calls which, in some cases, wiped them out financially.
6. Now a lot of people like a flutter and are quite prepared to lose very large
sums on the horses, the dogs, at cards or in the casino. The number of people
who, with touching faith that they will be instant millionaires, put the
weekly pension or the dole into lottery tickets. But at least they understand
how the system works. They part with their money, maybe foolishly, but with
their eyes open. Many of the David Coakley investors were in this category;
we interviewed them, when we took disciplinary action against David Coakley,
which, I am ashamed to say, was a firm fully authorised under the Financial
Services Act 1986, by my regulatory authority, the Securities and Futures
Authority ("SFA"), to conduct investment business.. One, a farmer,
who had lost £70,000 (this is pre-BSE and foot-and-mouth, when farmers
had a bob or two) laughed ruefully and said he deserved all he got. But many
were not so sanguine. They reckoned they had been very neatly had.
7. What David Coakley did, which is back to the Emperor's New Clothes scenario,
was to disapply the protections these investors were entitled to under the
SFA rules by designating these people "expert investors". They
did that by offering them a short correspondence course in investing in future
and options: a very short course, as it turned out, no more than a pamphlet
followed by a single multiple choice questionnaire. Once they had sent that
back to the firm, they were asked to tick a box on their client questionnaire
if they did not want to be designated as expert investors; they were even
told that if they didn't tick the box some SFA rules would not apply to them.
Nobody whose client questionnaire we saw had ticked the box. When we asked
why, invariably they said that they felt "flattered" to be categorised
as "experts" in this sophisticated, heady world of finance.
8. One gentleman was over 80; he lived in a nursing home whose fees had been
increased and he had feared he would not be able to meet them. His son-in-law,
a GP, who had made a small investment in David Coakley and seen a gain on
his investment, persuaded his father-in-law to invest all he had in David
Coakley's investment program. He lost everything he had and more.
9. SFA finally caught up with David Coakley and threw the firm and all its
directors out, as well as ordering them to repay as many investors as we
had been able to identify a proportion of their losses.
10. You are all very familiar with the phrase "if a thing looks too good
to be true, it usually is"; let me give you another one: "If you
don't understand what someone is trying to induce you to invest money in, don't
invest a penny in it."
11. Another, even more glaring example of this, was another SFA disciplinary
case: this time against a major investment house which employed a whizz salesman.
This young man (he was in his twenties, with a Ph.D in maths) had devised
a very sophisticated variation on a derivative instrument that his firm had
been successfully marketing to the fund managers of large corporate clients
for some years. The firm's own financial instrument was complex and depended
on variations in international currencies; but it was comprehensible, if,
in the firm's view, unsuitable for private investors. Our man decided to
use his initiative and sell his own product, which he hedged about with some
even more abstruse and complex bells and whistles and marketed it to the
firm's high-net worth individual clients. He found five such; very rich gents,
all residing abroad, with one exception. That exception was a former colleague
of his who had left the bank and was working for himself. Maybe our young
crook really believed in the success of his own product, because he took
his friend into the secret and sold some of it to him. He was the first;
indeed the only such investor to complain when he started to lose money,
hand over fist, by dint of his investment in this new instrument.
12. None of the others realised they had been duped; when things started to
go wrong, our crook falsified their statements of account so they thought
they were making money; he then fleeced them for more money. His motive was
to increase his commission, for his last year at the firm, before he fled
abroad, was over £2 million.
13. When we interviewed his clients, many of whom did not want to talk to
us, though they had taken civil proceedings against the firm, it was clear
that
none of them had understood the first thing about what they had been sold.
High net-worth they may have been; curious to find out what they were committing
their funds to they weren't. They were mesmerised, as so many are, by the
jargon; by the appeals to their sophistication, their knowledge of the
financial markets; the implication that "I don't have to explain this to you;
you understand it better than I do". They didn't. They didn't ask and
they didn't want to expose their seeming ignorance Between them, the five
rich gentlemen lost a total of $15 million.
14. Some years ago, I was asked to speak on the topic of prime bank instrument
fraud to an audience consisting largely of solicitors, accountants and their
wealthier clients. I told them that there was no such thing as a "prime
bank guarantee" and that if anyone tried to induce them to invest in
one, he was a con-man. Afterwards, several members of the audience approached
me and asked me if I was sure I was correct. They had themselves invested
in prime bank guarantees, sold to them by people they implicitly trusted.
They were even now waiting for large returns on their money. I wondered whether
they had asked questions; what research they had conducted themselves into
these novel instruments; where they had heard of them first? They were all
sure these instrument had been around for a long time; they had read about
them in the financial pages of the better papers; they were, after all, guaranteed
by "prime banks" weren't they? It is always sad to have to shatter
people's dreams; especially when they have put money up. But life's a bitch
like that, isn't it?
15. If they read about them in the financial pages, I suggested, surely it
was in connection with a warning "not to invest in them"? Perhaps
we should all put out clearer warnings: like "Don't put your money in
anything other than a large sock under your mattress". But nobody would
take any notice even if the letters were in 72 pt and in red ink.
16. Another cautionary tale: even longer ago than my time at the SFA, I worked
for the DPP, where we investigated boiler-room frauds (not quite as popular
now as they used to be). One such, run by a Canadian fraudster was stopped
in mid-flow by the Metropolitan Police (pause for applause) and the Evening
Standard published a front-page photograph of the Canadian gentleman being
led away by officers of the law. The half-page photograph was wittily captioned: "Mr
50%", that being the rate of interest this fraudster was allegedly offering
would-be punters.
17. That evening, the Met Police received several calls from the public asking
where the company was based in order that they could send money in for him
to invest; one or two cheques, made payable to the Canadian's company, were
received at Richbell Place (then the HQ of the Met Police Fraud Squad) asking
the officers there kindly to forward their money to Mr 50%.
18. Well; what is our current experience of this type of fraud? Prime bank
instrument fraud is a comparatively new kid on the block but continues to
flourish. High-yield investment fraud is a growth industry, possibilities
for expansion in this area made all the more exciting by the availability
of the internet.
19. We currently have under investigation a number of major prime bank instrument
frauds. Some are at the sensitive stage of investigation which means that
it would not be politic for me to go into any detail about them. Those which
have gone through the trial process, however, can be mentioned and illustrate
the modus operandi very graphically.
20. We have had recently had cases involving both the use of "prime bank
guarantees" and the involvement of professional people to help relieve
the victims of their cash. In one, a solicitor was one of the principals involved;
in the other, a licensed conveyancer was the prime mover. This may be coincidence,
but is a worrying trend, indicating that Law Society warnings are being ignored
by exactly those to whom they are principally addressed. (When the new money
laundering reporting and record-keeping provisions bite on solicitors very
soon, I hope we don't see a similar pattern). In some cases, we see the use
of professional client accounts or "blocked" funds. Typically, a
solicitor or accountant undertakes to "verify documentation" and
will only release funds when "genuine" Prime Bank Guarantees or other
evidence deposited, making the investment "risk free". Professionals
are recruited or embroiled in this sort of fraud in order to give it an aura
of respectability and safety. If you ever do see a Prime bank instrument, Prime
Bank Guarantees or standby letters of credit - it is claimed these 'instruments'
or 'notes' represent inter-bank debt and are traded on a secret market only
available to bankers – watch out.
21. High-yield investment frauds are as old as Croesus, who, fortunately for
him, didn't have to resort to such devices to make himself a gilt-edged proposition.
22. We have numerous examples of high-yield investment schemes on our books:
many have international connections and several originate overseas. The US
experience of trading program frauds is now mirrored over here; the novelty
factor has not yet worn off in the UK and the danger signals which are now
more likely to alert sophisticated US investors do not ring alarm bells loudly
enough to deter victims over here.
23. There is a widespread incidence of this type of fraud. The SFO and a number
of police forces in the United Kingdom are investigating cases in which "high
yield programmes," "enhancement programmes," placement programmes" or "roll
programmes" have been marketed by professional confidence tricksters.
I am also aware that there is a significant incidence of this type of fraud
in the USA. The Serious Fraud Office has worked in conjunction with the Federal
Bureau of Investigation and the US Department of Justice in dealing with
a number of such cases. During the course of the last ten years my department
has brought a number of cases involving this type of allegation to court.
The cases are difficult to investigate and prosecute because the perpetrators
are aware that their schemes are likely to fall under our scrutiny and they
plan accordingly.
24. Typically, in such a case, the investor is told that very substantial profits
are available to individuals and companies involved in trading in bank funds
and bank instruments. The investor is told that the sums involved in the
business are very substantial but that trading is not open to ordinary members
of the public, access being restricted to a small number of highly skilled
traders to whom privileged access may be obtained. He is told that secrecy
is vital and it is often a term of the written investment agreement that
the investor should not disclose to any person their involvement in the investment
programme or the existence of it.
25. Victims are rarely told of the precise destination of the funds. Those
who introduce victims to a scheme do so in return for a commission (deducted
in fact from the principal investment). The intermediary passes the bulk
of the funds to a third party who again, typically, will pass them on to
another in return for a further commission. None of the money is ever invested
in what could be recognised as a legitimate investment capable of generating
a profit. Some victims may be treated as "loss leaders" in order
to encourage others to invest and some are often paid small amounts of money
to allay their growing fears about the safety of their investment. These
sums are met either from the principal or from funds provided by new investors.
For the investor, trouble begins when the trickster's cash runs short. He
is then held at bay with stories about trouble in the banking system, intervention
by the IRS or the Federal Reserve. More recently, by tales of how the programs
have were disrupted by the tragic events on 11th September 2001. It takes
the investor a long time to realise that he has been the subject of a fraud
by which time the money has been spent and the con man has moved on to other
victims in a new scheme.
26. Those engaged in this business exchange detailed correspondence about the
course of investments and the inevitable delays in the payment of instalments
and the repayment of capital. In this way the perpetrators attempt to create
an opaque screen of apparently legitimate activity as a protection against
interference by regulatory authorities and those engaged in criminal investigations.
This type of fraud is always conducted across national boundaries and from
the point of view of those charged with the investigation of these offences
it is often very difficult to establish the guilt of intermediaries who present
themselves as innocent dupes.
27. High yield investment fraud is particularly prevalent at the moment probably
because of the low rates of interest payable to investors by financial institutions.
We will probably see further reductions in the future. When the Bank Rate
is as low as it presently is and falling a quarter or a half percent every
three months or so, there is every incentive for people who would otherwise
be extremely conservative in their investment strategies to seek opportunities
for their money to earn just a few percentage points more; and the words "guaranteed
return", and "impressive track record" do look very tempting.
Some of the less scrupulous people whose activities have been the subject
of SFO investigations, batten on to this temptation and offer seemingly irresistible
propositions: invest in ostriches – bonded alcohol – kruggerrands
(that was some time ago, but I am a very old prosecutor) and the sky is the
limit. Indeed; fresh air is all some investors saw for the money they had
put in.
28. All have one thing in common. They are designed to separate the fool from
his money. The profit accrues to professional and often organised criminals
who commit their offences across national boundaries.
29. I have been Director of the SFO now for almost exactly five years. In that
time I have seen a variety of cases referred to the SFO for us to consider
taking on. Among those have been a large number of advance fee or high-yield
type investment frauds. Some we have accepted for investigation; some are
currently being investigated; some are in the trial process and others have
simply been turned away because of the impracticability of investigation
and prosecution. Apart from the apparent gullibility of the losers I have
always been struck by the involvement time after time of the same people.
I have also been struck by what appears to have been the phenomenon of con-men
defrauding other con-men. Perhaps most of all I have been struck by the reluctance
of some victims to accept that they have been duped - even to the point of
complaining when the authorities intervene to rescue and repatriate their
investment.
30. What are the characteristics of these transactions that might lead you
to think that there is a fraud? Some of them - by no means all - are:
(a) Bank or other financial institution in some way provides funds or trading
(b) Very large amounts of money are involved in the funding/trading sometimes
billions of pounds or dollars
(c) Confidentiality and secrecy - perhaps slightly illegitimate involving
high Government officials or banking officials
(d) Usually risk free - guarantees by solicitor's client account, escrow accounts
and Solicitors' Indemnity Fund bandied about
(e) Use of jargon
(f) Complicated paperwork - often impressively produced on computer
(g) Use of faxes - easy to forge
(h) Transaction takes place in several jurisdictions
(i) Use of offshore bank accounts
(j) Use of intermediaries or brokers
(k) Rates of return unobtainable commercially without risk
(l) Rates of interest on loans unobtainable commercially
(m) Failure to complete the deal
(n) Perhaps I should have also said a complete disregard of the truth.
(o) Secrecy and exclusivity are vital. The victim believes he has been selected
because he is a very special person (he is!).
31. One or two colourful cases we have had include:
32. Burton and Andre
33. This was ruthless confidence trick where a bogus investment expert and
her associate put up a front of wealth and success to dupe private clients
and creditors out of around £3 million. They adopted a scheme they picked
up in the USA; a scheme that would appear attractive, if suitably packaged,
to people of some wealth. They set out to dazzle but the façade hid
an empty operation built on greed and self indulgence.
34. The Hertfordshire Police received complaints from anxious creditors about
two women who not paying their accounts. It seemed that the two Australian
women, Evelyn Burton and Lyla André, were walking out of expensive
hotels after running up considerable bills. At face value, such misdeeds
would not attract the attention of my Office, but as so often happens in
criminal investigations, one thing leads to another. Inquiries by the Police
led them to uncover incriminating documents left by the two women in a hotel
room in St. Albans. The discovery prompted the Police to refer the matter
to the SFO, though the Police continued to be involved in the investigation.
35. Burton and André were long-time business associates in a Melbourne
brothel. They arrived in the UK in September 1996 from the USA where they had
spent some time after leaving Australia to evade the interest of the authorities
for suspected crimes committed there. In the USA they met an American attorney
called Daniel Wright. He introduced them a scheme known as a high yield investment
programme. This was a way of attracting funds from individuals attracted to
select opportunities to achieve higher returns than, say normally available
on the stock market. The three of them set up a US registered company called
Westgate Development Corporation. The company however was simply a vehicle
for channelling money through a bank account in Maryland, USA.
36. Burton, supported by André, started in the high-living mode as soon
as they arrived in the UK. Collected by chauffeur-driven limousine from the
airport they proceeded to run up a substantial bill at the Berkeley Hotel in
London, much of which remains unrecovered. Whilst there, they made the acquaintance
of the owner of an employment agency. They were, they said, looking for staff
for a country home they were planning to buy. Through this route they were
introduced to what the Press have called the "horsey set". They soon
set about net-working among the affluent sector of society that attends equestrian
events such as the Windsor Horse Show.
37. Burton would give the impression that she was an experienced and successful
bond trader and could offer interested investors very attractive returns
through her finance business in the States. All this was done in an environment
of champagne receptions, arriving at events in expensive cars and having
servants in tow and generally demonstrating extravagance. Whatever they did
and wherever they went, it was all done with impressive aplomb. The façade
clearly won over many people as clients. Examples of victims include two
Swedish businessmen who trusted them with over £186,000, business partners
from Belfast who invested around £100,000 and an East Anglian land-owner
who bought into the programme for over £90,000. There were many more.
Burton was long on promises but short on delivery. As part of her way of
getting into the right circles she commissioned expensive bronze horse head
busts for The Arab Horse Society (but failed to pay them) and her promises
to sponsor winning prize money for horse owners were not honoured.
38. But the scheme began to unravel. Disgruntled creditors and investors were
asking questions. Sensing that it would be wise to disappear, Burton and
André left the UK, turning up in New Zealand in January the following
year, after a short stay in the Netherlands. Warrants for their arrest were
issued and an extradition order issued. They contested the extradition order
but at the same time became embroiled in criminal proceedings in New Zealand
for a fraud committed there. They were arrested by the New Zealand Police
in February 1999 and held in custody. Burton was tried at Auckland Circuit
Court ten months later and received a six-month prison sentence but released
on the basis of time already spent in custody awaiting trial. Charges against
André were dropped. They both then agreed to return to the UK under
Police escort to face the SFO proceedings.
39. On 24 January 2000, the defendants were charged at St. Albans Magistrate
Court and the case later transferred to Wood Green Crown Court. The trial
opened a year later. Burton pleaded guilty to one count of conspiring with
others to defraud investors. André admitted she had dishonestly retained
a wrongful credit and had evades a liability by deception. They were sentenced
on 9 February 2001 to prison terms of 5 years for Burton and 3 years 8 months
for André.
40. Peter Maude
41. In a second case, a bogus scheme was promoted to investors at conferences
on luxurious Caribbean cruise ships and in expensive hotels in Mexico. The
conferences were organised by a Dutch businessman Rudolph Linschoten who used
the name 'Professor Van Lyn'. Investors paid to attend the week-long conferences.
They attended lectures on the stock market, banking and offshore investment
trusts but the culmination of the trip was a two hour lecture on high yield
investment programmes. The programmes were described as being part of a secret
investment world in which fabulous fortunes were being made by a few brilliant
traders, such as Peter Maude.
42. The investors were persuaded that they could benefit from Maude's skill
by pooling their money in a company called Sabre Asset Management Limited.
The company was called "Sabre" because of Maude's penchant for
big game hunting (another company was named "Jaguar Asset Management
Limited" and Maude's house, 'Cornercroft', in Wilmslow was bought in
the name of "Leopard Asset Management Limited").
43. Some 195 victims each sent a minimum investment of US $25,000 to an Isle
of Man account, operated by Sabre, believing that the funds would be used
to buy bank instruments which would then be "traded" with very
profitable results. In fact almost as soon as it arrived in the account the
money was used to pay for Maude's house in Wilmslow and shooting equipment,
including expensive shotguns by Purdey and Holland and Holland and hand made
rifles by T & T Proctor. Maude also purchased a Range Rover for himself
and cars for his wife and for his children.
44. Sabre was controlled by a UK solicitor, Marshall Ronald, from his home
in Altrincham, Greater Manchester. Ronald was also prosecuted but acquitted
by a jury on 23 March 2001. He explained in a 7 week trial that he had been
deceived by Maude whose lies he had believed.
45. The second offence involved a conspiracy with a man from New York, Henry
Geier. Maude and Geier persuaded a Singapore businessman to invest US $1.2m
in Maude's investment programmes. The two conspirators then divided the money
between them. Maude spent his part of the proceeds on high living and luxuries
including an MG sports car for his girlfriend, a 26 year old Danish dancer.
46. Assets to the value of £3 million have been seized in the USA and
the UK, amongst them the house bought by Maude, his guns, shooting trophies
and a number of cars including a Morgan and the MG. The SFO intends to apply
for a confiscation order.
47. (In February 2000 the SFO discovered that Maude was still committing offences
on bail and applied for his bail to be revoked, he has been in prison since
then.
48. Rudolph Linschoten was prosecuted in Orange County, Los Angeles and was
sentenced to 5 years imprisonment for his part in the fraud. His girlfriend,
Freda Freitas, who had also been involved in the fraud, received a suspended
sentence. Geier was prosecuted in the USA and is facing a prison sentence.)
49. So these are the frauds we are dealing with. What can we do about them?
50. Disruption
51. Most of you here today are law enforcement officers and disruption of
fraudulent schemes is your stock in trade. The best method of disruption is
to tell the victim not to part with his money but in such circumstances what
can one do?
Firstly, I think there needs to be a concerted programme of education advising
people not to invest in these schemes. People need to be made aware of the
dishonest nature of these transactions and that their money is at risk if they
do.
Secondly, inform banks of suspicious transactions.
Thirdly, professionals involved - often solicitors and accountants - can be
warned that they are participating in schemes that are unlawful. The Law Society
has sent formal warninbgs to all solicitors and evidence can be given to that
effect. The Met are developing a pro forma which the person is asked to sign
as evidence of having received it which if nothing else puts them on notice
that what they are doing is, or what they are involved in, is likely to be
dishonest.
Inform the Law Society.
Inform the regulators, FSA etc.
Inform overseas regulators and investigation agencies.
What about publicity in the press? Pretty difficult to do until there is a
conviction but some papers and some journalists are prepared to run with these
stories.
52. Investigation
53. At a time when police resources are fully stretched. At a time when the
demands on you are increasing all the time. At a time when detective resources
are in great demand (though sometimes I fear not highly valued); where examination
of the unused material may tie up resources for months on end it is, perhaps
not unsurprising, that senior officers query the need to investigate an offender
living and working in their area but where all the victims are outside the
United Kingdom let alone outside the County. Those of you from overseas jurisdictions
will have similar experiences I am sure. However, a failure to investigate
such crime will in the long run encourage not only fraudsters but the other
crime which is often interrelated with it to base it in the UK. It is unacceptable
that professional criminals should be able to steal and enjoy the proceeds
of their crimes at the expense of others.
54. How do we at the SFO investigate these complicated matters? Easier said
than done. Let me give you a few pointers – as we say over here, probably
teaching my grandmother to suck eggs.
55. Firstly, you are unlikely to successfully investigate in any reasonable
timescale unless adequate resources can be made available. Those do not have
to be police officers - or even the SFO. What is required, right at the start,
is an exercise to scope what the investigation is likely to require and then
a decision made on the resources that are to be made available and, I hope,
kept available. A plan carefully thought through, altered as circumstances
change will help keep the focus on what you are doing and why you are trying
to do it. Almost always you will need to involve the prosecutor at an early
stage. If you have any hope of getting the case home you will need to ensure
that what you do obtain can be and will be going to be used in Court. Wherever
possible try not to execute warrants, hoover up vast quantities of material
which you spend the next nine months pouring over. The mechanics of your
document control systems need to be fully understood by all involved.
56. What evidence will you need?
57. All cases depend on their own particular circumstances but I would suggest:
58. Identify the victims.
59. Try and obtain their stories - you may have to go abroad to do so.
60. Follow the money - almost certainly you will have to go abroad to do so
using Letters of Request. To do that you will need to involve the CPS/SFO.
In some cases where there are multiple victims, witnesses, money trails you
may have to arrange to issue large numbers of Letters.
61. One of the most difficult things to overcome in these types of cases is
proving that the intermediary was complicit and had knowledge of the fraud.
There is great scope for each to blame the other.
62. Another difficulty is in obtaining negative evidence to show that the commercial
transaction underlying the fraud is a sham. Though, as I have said, prime
bank instruments do not exist; they have no meaning as far as I am aware
in banking law or banking practice and are used as a moveable feast – it
is difficult finding witnesses who are prepared to say so. I know of no simple
way of disproving a particular class of transaction. Each must be examined
and it may be possible to obtain expert evidence that this transaction is
commercially unviable.
63. Prosecution
64. As long as we do not have a substantive offence of "fraud" the
available charges have to be picked from the wide selection of statutory theft
and deception offences still in force; they may or may not fit the facts of
the case –
Conspiracy to defraud
Fraudulent trading
Section 47 Financial Services Act 1986 (fraudulently inducing an investment)
Illegal deposit taking under the Banking Act
Money laundering under the Criminal Justice Act
Theft
Obtaining by deception
65. Common methodology in high yield investment frauds
66. Points or pyramid selling methods are often employed, with hierarchical
layers of introducers or sales managers who recruit others and retain their
commissions, fees or expenses from funds collected. The involvement of so many
in the passing on of promises, progress reports and inducements to invest makes
prosecutions difficult – lower level introducers are often reckless rather
than deliberately dishonest and many invest and lose their own savings or recruit
family, church or mosque members. Some disappear, often to jurisdictions from
where they can't be extradited, enabling others to blame them at trial.
67. Funds are removed from the client accounts or so called 'blocked' accounts
into a sophisticated web of offshore companies and accounts in FATF non compliant
jurisdictions. Funds are also dissipated in commissions and intermediaries
fees including legal and accountancy fees. Effective restraint and confiscation
in these circumstances is impossible.
68. Enormous sums can be generated in a short time by an efficient pyramid
organisation. US$ 10-50m schemes are not uncommon and victim lists (when found)
can contain thousands of names from all over the world. English law no longer
allows specimen charges to be brought and proving the true scale of these frauds
before the court can be a nightmare.
69. Equally enormous, and patently unrealistic rates of interest or 'trading
profits' are promised to victims, usually 'tax free'. Victims who invest cash
are often unwilling to testify to their losses for tax reasons or are embarrassed
by their own greed.
70. Schemes and programmes are often promoted for short periods (1-3 months)
at very high rates of return (10-30% per month not uncommon), but invariably
most victims are persuaded when the term is up to re-invest or 'roll over'
their capital and profits in another scheme.
71. Short term schemes are used to promote urgency and excitement and give
victims minimal time to think carefully. Dire penalties are threatened for
breach of confidentiality and sham legal undertakings are used to dissuade
complaints.
72. Investors who demand repayment or interest are of course paid, at least
in the early stages of a scheme's life. Incoming funds are usually sufficient
and satisfied investors are encourage to recruit others.
73. Great play is made of the low risk or risk free nature of the Investment
or trading. Law Society, ICAEW or AA professional insurance is claimed for
funds deposited in client accounts. We have encountered commercial insurance
policies too. Such policies are usually avoided when the fraud is discovered.
74. It is often extremely difficult to identify the organisers of these schemes.
Brass plate companies directed, by tax haven lawyers are favoured; but investment
patterns can be deliberately circular to confuse the identities of promoters,
introducers and victims.
75. Finally, and perhaps inevitably, the multi-national nature of these schemes
(aided by internet promotion from sites in obscure jurisdictions, frequently
changed to other locations and ISPs) creates obvious prosecution difficulties.
Until would be investors (and their bankers and professional advisers) learn
to be more sceptical; law enforcement agencies will continues to be overwhelmed.
This is a battle that can only be won by victims themselves. It may be predominantly
a scourge of a modern, leisured and moneyed society but sadly the poorer countries
are not immune.
