Northern Rock former directors fined and banned by FSA

Two former Northern Rock directors have been fined by the Financial Services Authority (FSA) and banned from working for a regulated financial firm again.

The City regulator fined former deputy chief executive David Baker £504,000 for misreporting mortgage arrears data.  Former credit director Richard Barclay was fined £140,000 for also failing to ensure accurate financial information.  The FSA said the two had admitted their misconduct and received reduced fines as a result of their co-operation.  In a statement, David Baker said he accepted the FSA's findings "with great sadness".

Mr Baker was Northern Rock's deputy chief executive between 2004 and 2008, and was responsible for the bank's reporting of financial information.  The FSA said he became aware in 2007 that there were 1,917 loans left out of the mortgage arrears or repossession figures.  But he failed to make sure the figures were corrected, or to refer the matter up to the chief executive, and he subsequently made misleading statements to market analysts.  If these omitted loans had been included, the number of borrowers in arrears would have increased by 50%.

Mr Baker said he decided in January 2007 to give the unit involved six months to rectify the mis-reporting, to "resolve, not hide the reporting error".

"I made an error of judgement and I regret it," he said.

He argued that his actions did not affect customers or have anything to do with Northern Rock's collapse later that year, when it had to be rescued by the government.

The FSA said staff in the debt management unit, where Richard Barclay was a director, felt under pressure to maintain a lower-than-average level of mortgages in arrears and properties they had lent money against that had been repossessed.  This resulted in actions that "improperly reduced" the reported numbers of what are known as impaired loans.  However, the FSA stressed there was no evidence that Mr Baker, who ran the unit, was involved in these actions.

According to the regulator Richard Barclay failed to prevent a number of "improper practices" and his failings were abused by some members of staff, leading to an under-reporting of arrears figures.  As the detailed report on his actions said: "Mr Barclay's conduct demonstrated a lack of skill, care and diligence in establishing and overseeing effective systems and controls."

The FSA said Mr Barclay was aware that Northern Rock's (NR's) arrears position was being misrepresented.

"[He] took no steps however to ascertain the extent to which the arrears figures were being adjusted. Mr Barclay was also aware that the firm's arrears position enabled people within NR, analysts, NR stakeholders and the FSA to form a view of NR's asset quality.

However, the FSA said it was not possible to calculate the exact extent of the mis-reporting.

"The fines we have imposed on them leave no doubt that we will take action against individuals who either fail to act with integrity or who fail to perform their roles to a high standard," said Margaret Cole, FSA director of enforcement and financial crime.

"This is a loud and clear message that we are serious about taking action against senior directors where they step over the line."

Simon Morris, of City law firm CMC Cameron McKenna, said: "Every senior manager would do well to read these cases carefully.

"[The] FSA is in effect providing two case studies... explaining the standard to which it requires all individually approved managers to operate."

Posted at 07:38PM Apr 13, 2010 by Kelly Board in The Economy  |  Comments[0]

$6bn Hole in Fraud Case

Investigations into Allen Stanford’s Ponzi scam have revealed a $6bn hole, the appointed receiver Nigel Hamilton Smith has said.

Investigations into Allen Stanford’s Ponzi scam have revealed a $6bn hole, the appointed receiver, Nigel Hamilton Smith told Insolvency News today.

Hamilton Smith, head of corporate restructuring at Vantis Business Recovery, added that the 27,000 members of the public who invested in Stanford International Bank, were unlikely to see their full money again.

He said: “There is meant to be funds from the sale of certificates of deposits worth $7.3bn. However, the only assets existing are worth between $500m and $700m creating this $6bn hole in Stanford International Bank.”

Hamilton Smith, who was appointed by the Antiguan government, said of the investments: “All the money invested was siphoned away and spent on creating this huge financial empire. While it would be naïve to think Stanford didn’t stash away something, it certainly wasn’t billions.”

The Vantis boss said that the Stanford financial land assets were worth in the region of £150m, but the claims against Allen Stanford’s personal property assets were yet to be realised. Hamilton Smith said that the funds generated from the sale of the properties would go towards creditor's claims.

Vantis’s efforts to recover funds have so far been thwarted by US authorities. The group recently warned that the litigation surrounding its appointment as liquidator to Stanford International has meant it has been unable to recoup fees so far, and therefore revenues for 2010 will miss market expectations. As a result, Vantis’s house broker Ernst&Young put a “going concern” note on the accountancy firm.

The litigation surrounds conflicts around where the “centre of main interest” lies. The Republic of Justice in the United States has said that the funds in the UK, Canada and in Switzerland fall under the Proceeds of Crime Act, and as a result all funds have been frozen.

Vantis has so far failed to have the order obtained by the SFO lifted, which is delaying the release of funds. Hamilton Smith told Insolvency News that Vantis was now appealing to have the case fought in the Supreme Court, but this could take a year .

However he added that the SFO’s civil proceeding in the UK had failed – forcing it to take the criminal approach. But said: “It is strange that in the country where the fraud was perpetrated, the USA, there is no case involving proceeds of crime.”

Hamilton Smith is also applying for the Swiss authorities to release funds.

Posted at 02:51PM Apr 13, 2010 by Marc Stenton in Insolvency  |  Comments[0]