FSA wins first criminal conviction for 'boiler room' fraud

The Financial Services Authority has secured its first criminal conviction for a "boiler room" fraud after David Mason was sentenced to two years in prison and disqualified from being a director for six years.

The FSA regards boiler rooms – where investors are cold called to buy worthless, overpriced or nonexistent shares – as a "major menace to the public".

After a two-year investigation, Mason pleaded guilty at Southwark crown court to 13 counts of carrying on a regulated activity without authorisation, one count of making false or misleading statements and three counts of money laundering.

The FSA also took regulatory action against David Sinclair, who had unwittingly allowed Mason to use a bank account under his control and helped him set up EduVest, an investment vehicle used by Mason to lure customers to buy shares.

Some 32 people invested in EduVest after being cold called between November 2008 and May 2009 by salesmen employed by entities including Rothman Capital, Investor Relations Corp, Bernam Shore and Bishop Capital. The 32 invested £270,000, in the belief that EduVest would be listing on the Plus stock exchange in the near future.

Sinclair was fined £68,000 and banned from holding a "significant influence function" (SIF) at an FSA-approved firm. Axiom Capital Limited, which Sinclair financed and which specialised in helping companies list on the Plus market, was not subjected to any regulatory action.

Sinclair co-operated fully with the FSA and, as he settled his case at an early stage, his fine was reduced by 20%; without this, his penalty would have been £85,000. Axiom has voluntarily paid for all known investor losses and interest.

The FSA said Mason had laundered the proceeds of the boiler room operation via accounts in Switzerland and the Seychelles and had helped EduVest appear convincing by arranging for a letter to be sent from a fictional "David Branscombe" to give updates on its progress.

As he sentenced Mason, the judge, HHJ Rivlin QC, said: "I am satisfied that without your involvement this scheme could never have operated … I do believe the arrangements made by you were sophisticated … You caused distress, worry, frustration and in some cases serious disruption … You acted with blatant and I would say ruthless dishonesty which was thoroughly reprehensible."

Tracey McDermott, acting director of enforcement and financial crime at the FSA, said: "This prosecution must be seen as part of the development of our strategy in the fight against the major menace to the public posed by boiler rooms … This sentence sends a clear message that the court takes boiler room offences seriously and will hand down significant sentences to those involved in them."

The FSA is keen to deter fraudsters from setting up boiler rooms and last month fined stock market trader Samuel Nathan Kahn £1.09m for share ramping just three years after it bankrupted him for his part in a boiler room scheme.

McDermott added that while Sinclair had not made a deliberate breach of FSA rules, he had "failed to exercise the due skill, care and diligence required of an individual holding a significant influence function so must shoulder some of the blame for investors' money being paid to boiler rooms. This substantial fine and the SIF prohibition reflect the seriousness of his failings."

The FSA stressed that anyone contacted about buying shares should hang up, check whether the caller is authorised on the FSA register and if not, contract the FSA or the police.

 

 

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Bernard Madoff's payroll manager, Eric Lipkin, has pleaded guilty in a New York court after being charged with involvement in the Wall Street trader's multi-billion dollar fraud.

Lipkin, 37, admitted on Monday night that he "worked to deceive auditors". He pleaded guilty to six criminal counts, including falsifying documents and bank fraud, in a hearing in Manhattan federal court. The plea was part of an agreement to co-operate with the US government in its investigation of the biggest Ponzi scheme in US history.

Madoff, 73, was arrested in December 2008 and is serving a 150-year sentence in a North Carolina prison.

Lipkin admitted that he had doctored documents to show nonexistent account holdings, added fake employees to the Madoff payroll and lied to get a construction loan. US district judge Laura Taylor Swain told Lipkin he could face up to 70 years in prison.

Lipkin, the ninth person to be charged with involvement in the fraud, was released on a $2.5m (£1.5m) bond pending his sentencing. He told the court that "I'd like to first apologise to my family, my friends and all the victims in the case."

A Ponzi scheme is a fraudulent investment scheme which pays out returns to early investors using money paid in by later investors.

Prosecutors have obtained guilty pleas from Madoff's former accountant, David Friehling, and a key Madoff associate, Frank DiPascali Jr, who faces as long as 125 years in prison. Five more former Madoff employees await trial before Swain, all of whom have pleaded not guilty.

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Pennsylvania Supreme Court this morning refused to hear an appeal of a 2009 civil fraud verdict against Philadelphia Common Pleas Court Judge Willis W. Berry Jr.

The Pennsylvania Supreme Court this morning refused to hear an appeal of a 2009 civil fraud verdict against Philadelphia Common Pleas Court Judge Willis W. Berry Jr.

The one-sentence denial of review by the state's high court brings to an end the fight about the propriety of the verdict by a Philadelphia Common Pleas Court jury, which found that Berry defrauded a woman named Denise Jackson in the sale of a North Philadelphia lot.

The jury awarded Jackson damages totaling almost $200,000 against Berry and his real estate development company, Reddberry Development Corp.

"I'm really disappointed about this," said Berry's attorney, Samuel C. Stretton. "I thought we had some really good issues there."

The legal battles, however, are not over. Pending is a hearing before the trial judge over his decision to reduce punitive damages awarded by the jury from $180,000 to $20,000.

Jackson's attorney, Barry S. Yaches, said he expected the Supreme Court's ruling on the verdict in the case but is girding for the hearing on punitive damages before Judge Charles B. Smith.

The hearing before Smith, a retired federal magistrate judge and former Chester County Court judge, was ordered by the state's Superior Court in a parallel appeal after Smith reduced the punitive damages.

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businessman linked to a £100million investment scandal faked his death and is on the run in South-East Asia, fraud investigators suspect.

David Elias was declared dead after a bout of pneumonia in May 2009. He was living as a fugitive in Singapore and his ashes were purportedly scattered in the Malaysian rain forest on Borneo.

The financier was said to be behind one of the biggest personal finance frauds in recent years.

Investigators at the Serious Fraud Office probing the collapse of investment firm Keydata, to which Elias was linked, were reported yesterday to have ‘serious doubts’ that he is dead.

One is understood to believe that he may have faked his own death  ‘Reggie Perrin-style’ and is at large in Asia.

The City watchdog has been following the money trail left by Elias in the hope of uncovering the £100million taken from savers during the fraud in the 1990s. They are now believed to be hunting him.

In the television show The Fall and Rise of Reginald Perrin, the principal character fakes his suicide by drowning, leaving clothes and personal effects on a beach, to escape the mundanity of his job and day-to-day life.

Elias’s suspected ruse also recalls the disappearance of Lord Lucan, who went missing in 1974 after the murder of his children’s nanny. He was never seen again.

Eight years ago Elias, a former associate of restaurant critic Egon Ronay, emerged from his hideaway promising to write a ‘warts and all’ expose of his life and the people he had done deals with. He named a number of prominent British business figures who he claimed had threatened to kill him.


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He said he was living in Borneo but travelled frequently to Europe, although he was unable to return to Britain because of these threats.

Keydata was an investment marketing firm which focused on complex high-income bonds that were sold via a chain of independent financial advisers and managed by SLS Capital.

This was a Luxembourg-based firm part-owned by Elias. The bonds were billed as low risk investments and promised a 7.5 per cent return. Keydata had about 85,000 investors, many of them elderly savers wooed by this high return.


Martin Clunes as Reggie Perrin in the BBC's remake of the series

But the firm was put into administration after an investigation by the Financial Services Authority revealed that £103million of life insurance policies may have been misappropriated.

In June 2009 the FSA applied for Keydata’s closure ‘to protect  investors’, saying it was concerned about ‘potentially missing assets’. The firm was fast-tracked into administration. Over the past year more than £300million has been paid out by the Financial Services Compensation Scheme to investors who lost money.

Norwich and Peterborough building society was fined £1.4million for the way it sold Keydata products.

But not everyone at the SFO is convinced Elias is still alive.

One source said yesterday: ‘His death was timely from his point of view. There’s always a question over people who die in convenient circumstances but all the information suggests he is dead.’

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A staff member is being investigated for defrauding one of New Zealand's oldest friendly societies, allegedly taking up to $1 million over a decade.

The Serious Fraud Office said yesterday it was working with Wellington police to investigate allegations of employee fraud at Hibernian Catholic Benefit Society, whose headquarters are in Dixon St, Wellington.

SFO chief executive Adam Feeley said that, after initial investigations, it appeared a single staff member had been committing fraud over an extended period.

"It's not a case of someone writing a single big cheque and walking off with it.

"It appears to be more covert and to have been carried out over a longer time, so there are a fair number of documents to look through."

Blenheim man Dan Murphy has been a member of the society since the 1940s. He said news of the embezzlement was a bit of a shock, but he was sure the society would endure.

He had some money in the credit union, but it was not much and he was not too worried about it, Mr Murphy said.

The union was a modest, working-class thing, and helped its members in small ways: "You get one rotten apple and things go a bit sour."People should use the society more, as it was a good organisation, he said.

Marlborough branch secretary Jane McKee said there are 244 society members in Marlborough, and 11 credit union members.

The Hibernian Society, founded in 1869, manages $9.6m of assets on behalf of 2700 members, providing services including insurance, mortgages and funeral benefits to members and their spouses.

Most – although not all – of the alleged fraud is believed to have taken place within the Hibernian Credit Union, which offers savings and loans, and is part of the larger society. According to its last financial accounts, the credit union had assets of less than $900,000 in March 2010, with several hundred depositors believed to be holding investments of up to $40,000.

Society president Mike McBride said financial discrepancies were discovered after the society contracted accountancy firm Munro Benge to carry out its administrative functions. As the firm began to prepare the accounts for audit, a staff member noticed irregularities, prompting further investigation.

It was possible that as much as $1m was missing.

He said some problems had been identified in the accounts of the benefit society "but they are nowhere near the precarious position that the credit union has found itself in".

Michael Gibson, a former manager of the society, said he had received a letter from the credit union last week explaining that withdrawals had been frozen after it was discovered more than $500,000 was missing.



Mr Gibson, who left the society more than a decade ago, said the news was distressing.

"Basically it is good, ordinary, honest Catholic lay people and I feel very, very sad about it."

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Friendly societies are member-owned organisations, offering financial products such as insurance or pensions. Before the welfare state was established they were common, often based on religious or political affiliations or at large workplaces such as mines. Credit unions are also co-operative financial institutions, typically offering savings accounts and loans. There are now believed to be only six traditional friendly societies operating in New Zealand, the largest of which is Manchester Unity

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A wanted Irish man who has been on the run for over 25 years has reportedly been found dead in France.

Robert Stapleton is wanted in connection with a multi-million pound fraud, with Irish, UK and European Warrants for his arrest.

Lincolnshire Police previously said the 67-year-old was wanted over allegations of fraud of £5 million relating to companies he controlled.

Mr Stapleton, who has appeared on Crimewatch’s Most Wanted board, was arrested on a European arrest warrant in Ireland in 2005 but failed to surrender to extradition and disappeared.

It is now believed his body was found in a town in Brittany, France, on May 22nd. It is understood his death is not being treated as suspicious.

The Irish Department of Foreign Affairs said the French authorities have been in contact.

French authorities are working on the assumption that the dead man is Mr Stapleton, based on the documentation found on his person, but no formal identification is thought to have taken place yet.

A spokesman for Lincolnshire Police said they were aware a body had been found in France which may be Mr Stapleton, but he said they were awaiting confirmation of formal identification.

Mr Stapleton was wanted in connection with more than 30 offences involving a fraud perpetrated between 1978 and 1982 related to the collapse of his firm, Ultraleisure.

The firm, which marketed foldaway squash courts, collapsed, leaving a division of the British department of trade and industry (DTI) - the Export Credit Guarantee Department, which had guaranteed loans given to the company - out of pocket by £3 million.

It was alleged that the fraud involved company directors drawing up bogus invoices and supporting documents to show that Ultraleisure had exported goods and services to foreign buyers. Its banks - Lloyds Bank and Coutts - then advanced funds to Ultraleisure in the belief that the transactions represented on the documents were genuine.

When Ultraleisure had to repay the loan, a larger advance was obtained on similarly false documents and part of that was issued to repay the earlier borrowings. Ultraleisure therefore had to borrow larger sums of money to hide the fraud.

Mr Stapleton's wife was convicted in 1986 in Britain for participation in elements of the fraud and given a suspended sentence. Mr Stapleton had left Britain for Spain prior to this trial.

Spain did not have an extradition warrant with Britain. He returned to live in Ireland in 1994.

Mr Stapleton said he suffered a deterioration in his health due to the stress following an extradition request and his arrest by gardaí in 2005.

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