ON December 12, 2003, a man walked into Banque SCS Alliance in Switzerland and headed straight for one of the tellers, handed over an envelope and left.
Inside the envelope, the teller found a “certificate of deposit” worth $275m (£145m) to be paid into an account belonging to Crown Corporation, later called Langbar, a cash-shell that had floated on Britain’s Alternative Investment Market (AIM) six weeks earlier.
The certificate had apparently been confirmed by the Banco do Brasil as legal tender; but SCS instructed Proximal Consulting, an investigative agency based in Geneva and Wiltshire, to review it.
On December 31 SCS received Proximal’s report: “This document is not genuine and therefore completely worthless.” Banco do Brasil had declared it “entirely false”. Proximal added: “It was our understanding that this term (certificate of deposit) was in fact one used by criminals involved in prime bank fraud (and) ... is a meaningless term used by fraudsters.”
Crown/Langbar shares were eventually suspended and fraud investigators called in when the company’s assets, supposedly £350m held in the form of certificates of deposit in the Banco do Brasil, could not be verified or found. But the existence of the alleged fraud did not emerge until October 2005 — two years after Proximal spelt out its warning, by which time institutional and private investors had lost millions of pounds.
The report is just one of several pieces of new evidence to emerge about Langbar, which is now under investigation by the Serious Fraud Office, the City of London police and financial regulators. The Sunday Times has seen company files, documents, e-mails and letters that contain warning signs that Langbar’s advisers should have spotted and reported immediately to regulators.
The information was gathered and collated in an affidavit sworn by Sion Richards, of Jones Day, the law firm appointed by Langbar’s new management after the fraud was discovered. It was recorded in February to obtain freezing orders on the assets of Langbar’s founders so that they could be seized if the men are convicted of the fraud. The document has only just been released into the public domain.
Five defendants are named on the orders. Maruisz Rybak, a Canadian technology executive who set up the company as “a project designed to alleviate the boredom of his retirement from business”, is thought to have profited by about £30m from the alleged fraud. The second defendant is the co-founder, Jean-Pierre Regli, a Swiss-Italian banker who was still finance director when Langbar’s shares were suspended. Then there is Dr Abraham “Avi” Arad Hochman, who represented Lambert, an investment vehicle that runs funds for 2,000 Jewish pensioners, which became Langbar’s main investor. The fifth defendant is CMC Crown Management, the company controlled by Rybak.
In the affidavit, Richards declares: “In brief, it appears that the fraud has been perpetrated by the intended defendants acting together to form a shell company which floated on AIM, ultimately to encourage external investment which would in turn allow the original shareholders to profit from the sale of their own shares.”
The documents are particularly damning of the role played by Lawrence Graham, the company’s lawyers, and Nabarro Wells, the nominated adviser. It was the responsibility of these two firms to ensure the AIM listing documents were correct, but it seems there were significant problems with them.
One of the biggest discrepancies in the admission documents is over the company’s original capital, which was supposedly more than €200m (£130m) generated from the sale of shares. According to the affidavit, just before the float Rybak and Regli told Michael Storar, their lawyer at Lawrence Graham, that the principal subscriber would be SCS, the Swiss bank, and that it had pledged €207m. Yet when Storar called SCS days before the flotation it said it “had not heard of this proposal, did not have any money for the transaction and did not have any arrangements with any clients for this purpose”.
Storar said alarm bells rang, but he accepted an explanation by Regli and Rybak that “there had been political divisions at SCS but that there was no cause for concern as a company known as Lambert Financial Investments Limited would be replacing SCS in connection with the proposed subscription for €207m”. Storar amended the admission documents and was told Arad would take responsibility for obtaining the approvals and signatures from Lambert.
Crown/Langbar was admitted to AIM on October 31, 2003. Documents showed the company broker was Insinger Townsley, headed by Barry Townsley, the Labour party donor. Baker Tilly was the accountant.
In the affidavit, Richards said: “It became apparent shortly after flotation that the subscription monies had not, in fact, been received by the company ... due to the fact that various cheques sent to the company in settlement of these initial subscription monies were either lost or subsequently dishonoured. As a result, forfeiture letters were sent to each of the individuals concerned.”
The shambles came to the attention of Warren Cabral, the managing partner of Appleby Spurling and Kempe, the company’s Bermudan counsel, who wrote to Storar on December 30, 2003: “We are incredulous that five payments of share subscriptions should bounce at the same time ... there may be an improper flavour about this ... various scenarios of increasing severity present themselves: acquiring the shares by some sort of deception being the worst, with a knock-on of the listing on AIM and subsequent increase in value of the shares introducing Proceeds of Crime issues.”
When Storar said a bank mix-up was responsible, the Bermudan lawyer replied: “I have never encountered a public company, start-up or otherwise, that conducts itself in so casual a fashion.” According to the affidavit, Storar told Richards that he felt Cabral’s concerns were “over the top”.
Next Storar discovered that Lambert, which supposedly invested €207m on flotation, had not paid either. In the affidavit Storar says he was told in December 2003 that instead of cash, Lambert’s subscription liability had been satisfied by a certificate of deposit from the Banco do Brasil. It was this certificate that was hand-delivered to SCS and swiftly declared false by Proximal.
Events after the delivery of Proximal’s damning report are hazy. According to the evidence, SCS refused to hold the certificate of deposit as a security. But Regli asked Joseph Benhamou, the managing director of SCS, to hold “an envelope on behalf of the company ... the contents not being specified”. In May 2005, Regli withdrew the envelope, and when he signed the release form “he wrote in manuscript that the envelope included the certificate”.
Meanwhile, Baker Tilly had spent several months trying to verify the authenticity of the certificate of deposit for Crown/Langbar’s interim statements of March 2004 and June 2004. The directors of Langbar, as it had by now become, tried to satisfy Baker Tilly’s demands. Regli wrote to SCS for confirmation that they held the certificate. Since the Swiss bank had already declared it fake, it was unsurprising that Baker Tilly received a note on July 5, 2004, from SCS stating: “We have no knowledge of this transaction and therefore cannot confirm anything.”
Baker Tilly insisted only direct confirmation from Banco do Brasil would do. Langbar claimed to be dealing with the bank’s branch in Buenos Aires, so on September 1, 2004, Regli and Keith Smith of Nabarro Wells set off to Argentina.
Regli said he met with an “Isobel Julien”, who he was told was the wife of the bank’s vice-president, and a representative from its legal department. Regli said he met Julien three or four times; one meeting in what he believed was a real office — “the bank’s name was engraved on the windows and doors”. Although he took Julien’s business card, it was later discovered none of the contact details worked, while the address did not correspond to the only Banco do Brasil branch in Argentina.
Despite this, Regli and Smith returned with a letter, apparently from Banco do Brasil, confirming the certificate of deposit’s authenticity. Baker Tilly wrote that the documents were “satisfactory”. Two weeks later, however, Baker Tilly resigned, apparently because of unpaid fees of £20,000, without signing off on Langbar’s accounts.
All of the defendants deny the fraud charges. Rybak’s lawyer, Andrew Ford of Withers, said last night: “Rybak will be vigorously defending himself against these unfounded allegations and has already submitted a defence and counter-claim. He is seeking an order to expedite the hearing of the trial in order to clear his name as soon as possible.”
A spokesman for Lawrence Graham said: “While we were legal advisers to Langbar we fully discharged our obligations. We co-operated fully with the company’s current lawyers in their investigation and much of the information in the affidavit derives from this co-operation.”
Nabarro Wells refused to comment, and Baker Tilly could not be reached.
