Recently FDs of two FTSE-350 companies have come under scrutiny by the Serious Fraud Office. Frederick Clough, Versailles’ former finance director faces charges of fraudulent trading between February 1992 and January this year.
And five executives and three managers of Wickes, including Trefor Wilmot Llewellyn, group FD until August 1995, have been charged with a massive accounting fraud exposed in 1996.
Before these cases appear in court in the new year we take a look back at a few choice cases where tax evasion, false accounting, taking bribes and good, old-fashioned theft have landed finance executives a spell at Her Majesty’s Pleasure.
Donald Anderson, Brent Walker
Anderson was one of the directors brought to justice after the spectacular fraud and share price scandals surrounding Brent Walker in the early 1990s. But the ex-FD of BW’s film subsidiary, Goldcrest, was only brought to trial after he had been on the run for three years, having absconded in 1992 during interviews with the Serious Fraud Office.
At one point the SFO even thought that he was dead, but Anderson, overcome by a rare attack of honesty, surrendered to police in November 1995. He faced charges of theft, conspiracy to falsify accounting documents, attempting to pervert the course of justice and false accounting.
During Anderson’s absence forensic accountants had started a detailed investigation into the removal of £4.5m from Brent Walker’s coffers. The process culminated in an 18-month suspended sentence for ex group FD of BW, Wilfred Aquilina, in 1994.
George Walker, the ex-boxer who created the Brent Walker Group, was also arrested and tried but was eventually acquitted on all charges of fraud. A major point of his defence was that Anderson was chiefly responsible for all wrongdoing.
In 1996, Southwark Crown Court heard that Anderson had been involved in the creation of false documents between August 1988 and October 1990 to cover up £19m of bogus profits recorded by the Brent Walker Group between 1984 and 1987. BW created its own profits as group companies were falsely portrayed as genuine third-party customers.
Anderson was paid handsomely by Brent Walker for covering up the fraud. On at least three occasions he collected bearer bonds and cash totalling £700,000 from Geneva that were laundered through the Bahamas and Liechtenstein.
Frederick Fisher, a close friend of Anderson’s at BW, was a key witness for the prosecution. In court he said that Anderson had invited him into a room he shared with Walker, and showed him a list of “reconciliations” on his computer. “Mr Anderson said that from memory they totalled £33m of operating profit to Brent Walker… that was critical money, 60% or more of the company?s operating income,” Fisher said. “I said the way I had originally understood things it was a clean-up exercise and I felt it had gone beyond that to become a cover-up exercise.” He also told the jury that Anderson had indicated ?that it was being done at the behest of Mr Walker”.
In December 1996 Anderson was found guilty of perverting the course of justice and received a two-year prison sentence.
David Sharratt, Swithland Motors
Swithland Motors dealership chain was supported by an intricate web of false accounts and falsified documents to deceive bankers, investors and auditors Coopers & Lybrand. The company collapsed owing £15m in November 1993, just days after plans for an imminent stockmarket flotation were abandoned.
Swithland, which ended up with liabilities of £25m, made for a textbook study of how to commit a fraud. As prosecuting counsel Stephen Coward QC claimed: “The rot was so deep that every member of that organisation was sucked in to having to behave dishonestly to keep this sinking ship afloat.”David Sharrat, Swithland?s FD, ran false accounts, ensuring cars that had been sold remained on the balance sheet ? inflating assets ? by keeping the vehicle registration document issued by the DVLA in Swithland’s name, rather than the buyers’. If a buyer later complained, Swithland would ask the DVLA to issue a copy of the registration document ? but would keep the original as “evidence” of ownership.
And, before auditors visited, the make, colour and registration details of employees? cars were fed into Swithland’s computer so that they would appear on the inventory list. Conveniently, the cars were parked on the forecourt. Car rental contracts were also fabricated using model and registration details of absent cars ? “temporarily off-site” auditors were told.
Sharratt fiddled the VAT by claiming that the total sale price included thousands of VAT-free warranties, overstated payment protection plans and false tax disc entries. “You can imagine the panic,” prosecuting counsel said as he described the scene just before a visit from Customs & Excise. “The documents were a nightmare, just like a snowstorm, Tipp-Ex everywhere.”
At one point Lloyds Bank was shown false management accounts and subsequently granted Swithland a £1.5m overdraft. It breached its credit limit within days.In April 1997 Sharratt, then aged 51, was jailed for three and a half years and disqualified from acting as a director for seven years for fraudulent trading. Founder and chairman John Hayes was also jailed for five years and disqualified for 10.
Frank Shannon, Nissan UK
Octav Botnar, one-time French Resistance fighter and close friend of several Tory MPs, took over the exclusive franchise for importing and distributing Nissan vehicles in the UK in the early 1970s. By the 1980s Nissan UK, Botnar?s distribution company (not to be confused with any other Nissan dealership), through its managing director Michael Hunt and finance director Frank Shannon, had become the biggest Japanese car franchise in Britain, capturing 6% of the UK new car market.
Over 21 years Botnar, Hunt and Shannon had built businesses with an annual turnover of £1.5bn and annual pre-tax profits of close to £150m. But these profits were fraudulently understated as part of what was at the time the UK?s largest tax scam. Jail beckoned.
The Inland Revenue discovered evidence of massive fraud between 1975 and 1991. By artificially inflating freight charges and routing the excess through a Swiss bank account, Nissan UK had evaded paying £92m in corporation tax.Shannon pleaded guilty to one of five fraud charges and was jailed for three years in July 1993 after settling a Revenue tax claim for £10m. Hunt was released in 1997 after serving part of his eight-year jail sentence as well as repaying an estimated £22m.
Although accused of being the prime mover behind the fraud, Botnar has avoided prosecution by remaining in self-imposed exile in Switzerland. Botnar professed his innocence up to his death in 1998, claiming that there was never any direct evidence of a fraud apart from Shannon’s confession. This, he claimed, was part of a deal struck with the revenue to settle Shannon’s tax problems.
But in the end jail did not curb Shannon’s creative desires. During his time in Ford Open Prison he reportedly hit on the wheeze of donating frozen turkeys to local charities so that he might be allowed out to present them in person. Once outside he used the opportunity to pop home to see his wife.
David Ashworth, Landhurst Leasing
Landhurst Leasing specialised in vehicle finance but the directors of the company also pursued a sideline in fraud that helped fuel an extravagant obsession with motor racing.
Ted Ball, Landhurst’s founder and David Ashworth, FD, built up a successful leasing operation in the 1980s but started cooking the books and deceiving bankers to enable them to buy the Brabham Formula One racing team from Bernie Ecclestone in 1990 for £1m.
The Brabham team failed both on and off the track and, unable to attract sponsors, Ball and Ashworth poured millions of Landhurst’s money into the failing venture.
To buy the team the pair applied pressure on a client, the struggling engineering company Middlebridge Group (MGL), lending it £8m that was then used to make the purchase. In return, MGL’s directors were persuaded to make illegal cash payments to Ball and Ashworth totalling hundreds of thousands of pounds.Landhurst began providing this finance to MGL in 1988. However, from the outset the company had problems repaying its debts, leaving Landhurst in breach of bank covenants. Instead of reporting these breaches, Landhurst falsified accounts and rolled over leases, often extending further credit on assets of little value, including piles of parts and vehicles without engines.
Eventually, in early 1992, Ashworth had no choice but to report a breach of covenant to the banks. Landhurst had collapsed owing the banks £121m, of which only £70m was recoverable. MGL owed Landhurst some £7.2m.
In October 1997 Ashworth was jailed for 18 months and disqualified for six years as a company director for accepting £120,000 in back-handers from MGL. Ball was jailed for three years. Opening the prosecution, Timothy Langdale QC, for the SFO, said: “It was plain simple old-fashioned greed.”
Chris Harrison, Facia
Yorkshireman Chris Harrison was finally brought to book last year after a string of collapsed business ventures. Harrison, who was the former FD of retail chain Facia, was sentenced to five and a half years in a German jail after his arrest at Frankfurt Airport in July 1998.
Although the charges of misappropriation of funds for which he was jailed related only to Andre Deutschland, a German footwear company, Harrison had been involved in a network of failed businesses, starting with Facia which collapsed owing more than £70m.
Facia was the vehicle used by Harrison and founder Stephen Hinchliffe to create one of the fastest built private retail empires in commercial history. At its height Facia controlled more than 900 stores. But in October 1996 the duo were accused of breaching their financial duties by making unjustifiable payments to companies within Hinchliffe’s empire. A claim for £35m brought against Hinchliffe by administrators Price Waterhouse was dropped in March 1999.
Hinchliffe subsequently took control of Bata Shoes based in Germany, renamed the group Millennium and installed Harrison to head up the German operation. Unsurprisingly, the company eventually collapsed. However, Harrison managed to buy it back from the receivers and re-named the company Andre Deutschland. He fired 300 of its employees and closed 50 stores, but the company suffered an unspecified loss on sales of DM215m in the year to August 1997. Trading continued to deteriorate and Deutschland faced bankruptcy proceedings.
During this time, Harrison was accused of making cash payments of $812,000 to Gunther Pliff and Heinrich Fiedler, two associates of the company. He was also charged with having transferred $510,000 from Andre to a UK bank account.
Harrison was sentenced in February 2000 but had spent so much time on remand that he was expected to be out in a matter of months. Hinchliffe was jailed for five years in the UK in February 2001 for his part in Facia’s downfall.
Thomas Baxter, MTM
MTM was once the UK’s second-largest fine chemicals company. But after the chairman, Richard Lines, and FD, Thomas Baxter, were jailed for fraud in 1997, the company sank into oblivion.
MTM embarked on an aggressive acquisition strategy in 1990 and bought two big American chemicals companies, Hardwicke and Orsynex. Everything seemed to be going well. But the following recession left MTM stretched to financial limits.
So Lines and Baxter embarked on a scheme to deceive analysts about the company’s health. When acquiring Orsynex, false invoices were created suggesting MTM had made a profit of £2.15m from the purchase. MTM then held a rights issue to raise money for the purchase of Hardwicke. Baxter assured institutions the issue would not dilute earnings per share. To help meet this, another bogus transaction was booked to MTM claiming the company had made £1.8m profit from an Italian subsidiary?s asset sales.
On the back of buoyant announcements Lines cashed in shares worth over £7m.In early 1992, MTM shares were 286p. But the company then announced a delay in publishing its annual accounts after auditors BDO Binder Hamlyn forced MTM to adjust its 1991 accounts, lodging objections to transactions where credit notes were booked as sales. The company?s projected profit of £10.5m was later reported as a loss of £23m and the share price plunged to 10p.
In February 1997 Lines was jailed for two years and Baxter was jailed for six months and disqualified from acting as a company director for two years. Sentencing Baxter, the Judge told him he had failed in his duty as a chartered accountant.
Stuart Dixon, Bilton’s Tableware
On 3 September 2000, Stuart Dixon was sentenced to six months? imprisonment and disqualified from being a company director for two years. He was sentenced for three cases of non-payment and six of late payment of employees’ contributions to the company pension scheme when he was FD of pottery company Bilton?s Tableware in 1998.
Dixon’s case was the first time a prison sentence had been handed out for such an offence. But with the help of the pensions regulatory body, OPRA, Dixon was handed a get out of jail (nearly) free card.
OPRA had already exercised its right to impose a civil penalty on Dixon by fining him £2,500, but the judge explained that he took a very serious view of “a wicked breach of trust” and passed sentence.
Leave to appeal was granted and Dixon subsequently claimed that he had been unaware that a criminal offence was being committed and that Bilton’s had been in dire financial trouble. The scheme’s pension advisor had also failed to inform Dixon of the late payments. When Dixon discovered the action was unlawful, he reported the matter himself to OPRA.
A move from criminal sanction to civil penalty was directly requested by OPRA and the appeal judge duly quashed the sentence of imprisonment, fining Dixon £3,000 instead.