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UK Fraud a Veritable Scam Encyclopedia

Investors who think that they’ve done a thorough due diligence investigation are left scratching their heads and wondering how they missed the fraud.

Investment fraud is not an American problem; it’s a world problem. While American frauds give us more than enough cases to discuss on this blog, there are even more cases overseas. Recent guilty pleas in the United Kingdom show that overseas scamsters are just as adaptable, prepared, and audacious as the American characters I describe in The Vigilant Investor. The next book might be about scams in other countries; I’ve certainly got enough material. According to Britain’s Serious Fraud Office:

Gresham Ltd. (“Gresham”), a London based operation, purported to offer the sourcing and provision of commercial funding by way of loans or joint venture capital, for which “advance fee” payments were sought from individuals. It was set up by Edward Davenport (“Davenport”) who in 2005 bought a near-worthless company registered many years earlier, Industrial Design and Finance, and renamed it Gresham Ltd.  His company brochure described the business as having a “consistent record of trading…” over the “last 50 years”. He recruited Peter Riley to run the company on the day-to-day basis, to meet prospective clients and sign the loan agreements.   Davenport remained however, the “supreme leader”,as described by one of the conspirators in a recovered email.  Borge Andersen (“Andersen”) joined Gresham in February 2008 to become Riley’s principal lieutenant, signing agreements and fobbing off concerned applicants with bogus explanations for delays in provision of funding.

The dishonest representations which underpinned the Gresham operation included claiming that it had particular experience and expertise in the field of multi-million pound commercial finance, claiming that it had access to a number of sources of funds that were available to fund projects of the type that were being presented and claiming that it had a successful track record of arranging funding for clients.  Solicitor David Horsfall, a long-time associate of Davenport (and who had acted for him in High Court litigation relating to his acquisition of the former Sierra Leone High Commission premises at Portland Place in 2000) added a professional reassurance to prospective applicants seeking confirmation of Gresham’s ability to advance substantial loans.  He also falsely claimed he had transacted loan agreements and dispersed money for Gresham.

David McHugh pretended to be a qualified lawyer and an accountant of 35 years experience.  He traded as Touchstone Accountants and Touchstone Law. In reality he was not enrolled or qualified in either profession.   He entered into the Gresham conspiracy in early 2008 and amongst the various deceptions he contributed to the fraud was the preparation of false company accounts

After persuading victims to seek finance, Gresham would proceed to obtain the advance fee from the applicant as an absolute priority and before taking any further step on the applicant’s behalf. This would be followed with a range of deceptive assertions and claims designed to extract further monies from the applicant by way of deposits, fees for bridging loans or fees for insurance policies.

Having obtained the fees, further deceptions were made to convince the applicant that genuine and positive steps were being taken to provide the funding that they were seeking. When the applicant complained about the speed of progress or the lack of results, a range of tactics and excuses were deployed deflect the client from appreciating the true situation.  An example is where Riley blamed delays on a fictitious Monaco financier called Louis Martin, even setting up an email address of that name and sending reassuring messages from it to applicants.

Riley and Stephens were old friends.  The fraud used loan documentation templates from a previous similar dishonest scheme that Stephens (under the name of Kirkup) was involved in.  Stephens joined in the conspiracy in 2007, following his release from prison, taking on the role of “surveyor” to visit the sites of the proposed building projects in order to give the impression that proper and professional procedures were being undertaken and as a pretext to demand “due diligence” fees which in some cases for site surveys were over 50,000 euros.

I could write a month’s worth of blog posts from this case alone. For now, let me take just a couple of teachable moments from this story.

Notice that this fraud involved an entire crew of scamsters working in concert. If you consider yourself skeptical, you might venture out to try to confirm the investments’s legitimacy before parting with your money. But, because you haven’t yet identified the tricks every healthy human brain will play, you wind up getting evidence of the supposed legitimacy from scam cohorts who are playing roles assigned to them by the leader of the fraud. That’s what happened in this case, and it’s what happens in hundreds of cases every year. Investors who think that they’ve done a thorough due diligence investigation are left scratching their heads and wondering how they missed the fraud. They missed it because they were not looking for it. They were looking for legitimacy. The mental approach to the investigation determines its effectiveness. If you don’t look for fraud you won’t find it, even though it is there.

Notice also that these scamsters set up one of their team to play the part of a trusted attorney and accountant. We are loathe to believe that any professional would be involved in a fraud. But many are. And many scamsters simply pose as professionals. It gives the scam an air of legitimacy that works every time.

You may be prone to believe that this fraud was among the most sophisticated scams ever carried out, with its large cast of characters. While it is certainly more sophisticated than the Nigerian scams that still plague the Internet, it was no more sophisticated than the average scam. Uncovering frauds like this one requires tools and tactics that you were not born with. The good news is that you can learn them. The Vigilant Investor is your best resource. You know about it now. Read it, or risk being very sorry that you didn’t.

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