Sunday, July 15, 2012

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

Back in the office, I started to unravel the mess that was The Vegas Trust. The first thing I did was to get statements from the two City Bankers who had brought the matter to the attention of the DTI in the first place, as I believed their evidence would be vital to proving the case, and would be very persuasive to a Jury.
Let me say that both men were utterly charming, and allowed me to visit them. However, neither man was keen to make a statement and it was very clear that neither of them wanted, under any circumstances, to be called to give evidence in Court. Both insisted that if necessary, they would require a witness order to be issued by a Judge to enforce their attendance!
They were content to say that the document was utterly reprehensible and in their view a complete breach of the PFI Act, but when it came to wanting to be involved personally, they were very reluctant.
One of them greeted me when I walked in to his office. He came over and shook my hand. He did so in a very peculiar way, his thumb pressing between my knuckles and rotating hard. I shook his hand as best I could in return. He started to walk back to his desk then turned around and said 'Let me check that handshake again'! He held out his hand and I took it. He then proceeded to press another set of knuckles, while pressing hard with his thumb between the web of my thumb and first digit, while I simply tried to give him my usual firm grip handshake. He seemed satisfied and returned to his desk.
He insisted on having his original statement looked at by his lawyers before he would sign it, which took time, but eventually he did send it back, with a covering letter explaining how busy he was, and that he only expected to be called to give evidence if it was absolutely vital to the case.
I was very intrigued by the handshake episodes, and having been a Scotland Yard detective for some years I was not unaware of the influence of Freemasonry within both the City and the Force. I am not and never have been a Freemason, believing their practices to be incompatible with dedicated police work. However, some of my friends did practice the craft, and I asked one of them who was open about his interests to explain the significance of the handshakes.
His answer was fascinating. '...First of all...', he said, '...he would have almost certainly expected you to have been a City Police detective, not a Met officer. He wanted to see if you were a Freemason and what rank you held. You would have conveyed this in your first handshake with him. His handshake was intended to tell you that he was of very senior rank indeed in the Order. You must have inadvertently given him the impression that you were on the Square as well, but as you are not, he would have been confused as to your standing so he came back a second time. In his second handshake (which I had described) he was telling you that he was in distress, meaning he was indicating that he did not want to be put in an embarrassing position, and if you had been a Mason, you would have understood this...'
I was learning that Freemasonry played a significant part in the way in which the financial sector was run! These important men were prepared to complain about others from behind cover, but they didn't want to stand up and be counted when the chips were down. They had power, no doubt of it, but without responsibility, the prerogative of the whore, and they used their undoubted power in the City to get out of difficult situations when it didn't suit them to come to notice. I would later learn that in the City it is not the done thing to be a whistle-blower, no matter how elevated your position or how great your power. The financial sector frowns on those who tell tales outside the magic circle. No wonder they didn't want to come to give evidence.
More importantly, I had discovered something momentous in the Vegas Trust papers. The first six month audit had been given and signed off by a leading firm of accountants. They had simply taken all the trading statements provided by the firm, checked them to see that the figures on the documents tallied with the accounts of the Vegas Trust, and signed them off as being accurate and truthful. This audit report had been sent to all the clients of the Trust. This was going to make things very difficult for my investigation.
The investments from the clients had been paid into a bank account in Guernsey. Monies from that account to fund the trading operation were ostensibly drawn down and used to pay the margin deposits with the various broking arms of the brokerages used by the metals broker (who had been appointed as a manager to the Trust through a company trading in the Turks and Caicos Islands). All client money balances were held in an account in Guernsey, and they were administered by a Guernsey Accountant.
The documents disclosed that the Trust was showing a profit in the first six months from trading Silver in its books in excess of £150,000. My first thought was that the trader might have just forged the trade statements like Michael Doxford had done. No, the account statements were all provided by a well-known and distinguished old London-based, commodities trading broker house, and they were patently not forgeries.
I was aghast! I had just turned over a company that despite its breaches of the PFI Act, was clearly trading at a significant profit, and that money was now out of reach of the creditors and I was being blamed for causing the company to fail. The company had issued press releases stating that despite being a profitable concern,  (please read our accountant's audit report), the highly improper and precipitate actions of the police had created an atmosphere of distrust in which the company could not trade successfully any more, and would need to be wound up. It was unlikely that any monies would be realisable at the end.
I had started to receive letters before action from angry clients threatening the Commissioner of the Metropolitan Police and myself with writs for damages for destroying their investment opportunities. I had senior officers crawling all over me like a rash, demanding that I account for my actions and suggesting that the case be taken from me and closed down and settlements agreed with the losers. Two middle management officers who particularly disliked me were vociferous in their condemnation.
They resented me because my Commander had earlier sent me on an extended study visit to the USA where I had studied financial crime and financial regulation with the SEC, the CFTC in Washington, and all the major trading exchanges in Chicago, Philadelphia and New York. These men had lobbied long and hard to be allowed to accompany me on this visit, not because they knew anything about financial crime (they didn't), and not because they were going to stay at the Fraud Squad (they weren't), but because they fancied an extended trip to the States courtesy of the British taxpayer, using the excuse of being there to 'supervise' me. My Commander had put them firmly in their place and indicated that it was his decision that I would go alone and report back. This decision caused an enormous amount of resentment among a group of men who were steeped in the theory of hierarchy, and thought that I was being given privileges above my rank. On my return they made it their business to make my life a misery, and this case was a good opportunity for them to turn the knife.
I simply could not believe that the Trust had made this money lawfully. I had analysed their earlier trading and almost without exception, they had made consistent losses. Frankly, the metals' trader wasn't at all good at his job, he was nothing more than a bad gambler, and he got things consistently wrong. But hey presto, just as the audit date was about to arrive, he engaged in a spectacular trade which made a huge profit.
The whole case now hung on evaluating this one trade. If he was right, then I and my Fraud Squad career were probably finished. If he was wrong, then the case was a wide open fraud, and everything would go well after that! Or so I thought!
The trade was a short sale of silver, buying at a specific price, waiting for the price to fall, and then closing the contract at an even lower price, but making a profit on the differential. The trade statement showed the contract being opened on 1st November selling a significant number of lots of silver at a price of £234 a lot. The closing trade statement showed the contract being closed out on 15th November at a closing price of £210 a lot, a profit of £24 per lot. The number of lots involved meant that the total profits from this one deal were sufficient to wipe out the accrued debts from previous losses, and leave a balance, after commissions of in excess of £150,000.
My cop's instincts told me this was hooky, it just screamed 'Fraud' at the top of its voice and my detective's gut reactions were to continue to follow the evidence wherever it led. I had always been a huge fan of Sherlock Holmes, and Conan Doyle's brilliant creation was often a source of solace and instruction for me. I often quoted him to myself; '... It is a capital mistake to theorize before you have all the evidence. It biases the judgment...' or '... It is easier to know it than to explain why I know it...'  and even '... In solving a problem of this sort, the grand thing is to be able to reason backward. There are fifty who can reason synthetically for one who can reason analytically...'    But I particularly relied upon Holmes's most famous adage,  '... How often have I said to you that when you have eliminated the impossible, whatever remains, however improbable, must be the truth..?'
I rang the brokers and asked them if the first trade with its reference number had been undertaken by them and on their book. 'Yes' was the reply, 'we did this trade on the day in question.' I then asked if they had undertaken the other trade referred to on its specific date. 'Yes' came back the answer, 'they had done that trade also on the date referred to.'
Fuck! I put the phone down, I knew when I was beaten. It was only a question now of trying to save face and get us out of this mess with the least cost to the Commissioner and try and work out how I was looking forward to being a school crossing patrol constable in South Mimms for the rest of my career.
And then, a simple but highly unlikely thought struck me, as yet another of Holmes's philosophies came through to me. Here I was thinking about the imponderable and I still hadn't finished the main enquiry. Holmes once said '... Before turning to those moral and mental aspects of the matter which present the greatest difficulties, let the inquirer begin by mastering more elementary problems...'
I rang the brokers once more, was there just a chance? I could tell the guy at the brokerage was getting fed up with my calls.
'...Are these two trades directly related..?' I asked him, '...does the opening statement refer to a deal done which was closed by the second trade...?
'...I'll check...'
He was back on the phone. 'No, there is no connection between them. The first short position is the closing trade of an earlier long position on which they lost a lot of money. The second  long closing position is the first of two undertaken in a wash trade...' They just spent a lot of money on commission for nothing. By the way we have closed their account and issued a statutory demand for payment, they owe us a lot of outstanding money...'
(A wash trade is where a trade is opened and closed for the same price in the same transaction. It is a purposeless transaction but it exists to provide necessary documentation when a broker needs a convenient trade statement to close an open position. Its legality is dubious but was quite openly used in those days.) What the Vegas Trust had done was to use the back end of the first trade and the front end of the latter wash trade. Then discard the first and last documents and back the second and third documents together and call them a profit. As long as nobody asked any awkward questions, no-one would be any the wiser.
I sat back as an indescribable wave of relief flowed through me. The whole thing was a complete fraud. It wasn't just a case of some dodgy documents, the whole bloody shambles was a fraud from start to finish. They hadn't even paid their brokers, they were so greedy. My first concern was for the money in the accounts. The problem was, they were in Guernsey, and I had no powers there! I rang a colleague (and a mate) in the Guernsey Fraud Squad  
'It was more than his job was worth' to ask questions about a bank account he told me!' '... I will do what I can...'
He was back on the line, the accounts were empty and had been for some days, ever since the search of the premises.
But now, my enquiry was wide open and I could do what I wanted without hindrance. I was dealing with a major fraud case, the documents proved the whole operation to be a series of lies, the audit was hugely negligent because the accountants hadn't reconciled the bank accounts with the documents, but they simply wanted a quick fee for 5 minutes work, and hadn't asked the right questions. More importantly, these so-called forensic experts had no experience or gut reactions to recognise a fraud when it was in front of them. I was ecstatic, but my joy was to be short-lived.
I had learned that even the most elevated people in the City would prefer to play by their own rules rather than engage with the ordinary rules of social responsibility that apply to the rest of us. They considered themselves to be a class apart, and saw no reason why they should be required to conform. They knew the DTI Secretary of State personally, they met him at high City functions, and they were just passing on some information on an informal basis. They never ever expected to be required to step forward and become accountable. I began to learn that this attitude applied to everything that they engaged in. I was learning that the City had its own ways of doing things and the City did not believe that it was anybody's business but their own how they behaved.
I also learned that accountants will do anything for money. The old joke is true! What happens when you ask an accountant what two and two makes? His answer will be 'What do you want it to make?'
But then my problems really started, which I will deal with in the next posting.

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