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Fraud Updates 2008
20 March
In a judgment handed down last week, the Commercial Court discharged a worldwide freezing order that it had previously granted in support of a New York arbitration freezing a defendant's assets up to the value of US$12 billion. The Claimant had failed to establish a real risk of dissipation of the Defendant's assets.
In the judgment it was suggested that in some cases the importance of combating international fraud may be so great that the Court will grant an order in aid of foreign litigation, even where the link with England is small or non-existent.
The case demonstrates that victims of international fraud should consider whether they can utilise the effective extra-territorial remedies available from the English Courts even where the defendants and their assets are located outside England.
20 March
The rumours that have been spread to depress the share price of HBOS are a high profile example of a type of fraud that has been prevalent for a number of years.
When the economy has been doing well, fraudsters have sold worthless shares in a company, promising that their value will increase dramatically on the back of some major confidential news that will shortly be released to the market. The rumour drives up the value of the shares sold by the fraudsters which then crash when the rumour is discovered to be unfounded. The fraud is known as "pump and dump".
When the economy is in a state of flux, fraudsters seek to take advantage of the uncertainty that is created. In the case of HBOS, it has been reported that false market rumours were spread to depress the value of their shares and enable profits to be made by those who purchased those shares, when the share price recovered. This is known as "trash and cash".
Victims of the fraud who sold their shares for less than they were worth may have remedies against those who have pedalled the rumours in deceit and under the Financial Services and Markets Act.
17 March
Florida Story - Investors lose £34m in US shares scam
A father and daughter have been arrested and charged with mail fraud, wire fraud, securities fraud, money laundering and conspiracy in what has been described as the biggest international boiler room scam uncovered so far.
The scam involved about 15,000, mostly elderly, UK investors with losses ranging from a few hundred pounds to more than £1m.
While it can be difficult for victims of this type of fraud to recover their investment, the UK Financial Services Authority SA recently worked with Canadian authorities to freeze and then retrieve most of the £1.25m lost by 153 UK victims in another boiler room scam before the operators disappeared.
In the case in Florida, the authorities appear to be working on the powers available to the local criminal authorities to recover losses.
There are also a range of other options that may be open to victims of fraud. Apart from taking civil actions to freeze the fraudsters' assets, consideration should be given to how the money is laundered. If, for example, the money is laundered through the accounts of third parties such as lawyers, accountants and bankers, then they may be liable for the losses suffered.
Extradition
In a landmark ruling, the House of Lords has set some parameters regarding the ability of the US authorities to extradite UK executives to the United States.
The case involved Ian Norris, a former chief executive of Morgan Crucible, whom the US authorities alleged had been involved in price-fixing. Mr Norris argued that the activities concerned occurred before 2003, when price-fixing was criminalised in the UK and he could therefore not be extradited on those charges.
US prosecutors tried to persuade the Courts that Mr Norris' activities amounted to a conspiracy to defraud which has always been a crime the UK.
The Lords however decided that the two offences were separate; Mr Norris could not be extradited on price-fixing as it was not a criminal offence at the time and as he had not been charged with any of the aggravating factors required for indictment of conspiracy to defraud, he could also not be extradited on that basis.
However, Mr Norris still remains at risk of extradition as he may be extradited to face charges of obstructing an investigation.
This case is another example of US prosecutors looking beyond their own shores when it comes to holding executives to account.
Fraud Figures
Fraud figures released by the payment association Apacs reveal that, despite the introduction of Chip and Pin over a year ago, card fraud is on the rise. The cost of card fraud in Britain totalled £535.2 million during 2007 which represents the first rise since 2004.
Whilst Chip and Pin has been successful in reducing the ability of fraudsters to use stolen or cloned cards on the high street, fraudsters have instead migrated to other areas.
The greatest rise in fraud has been committed by those using stolen or cloned British cards in other countries. Overseas card fraud jumped 77% to almost £208 million, prompted by the fact that many countries do not yet use Chip and Pin technology.
Card not present fraud also continues to grow, prompted by the continued growth of on-line sales. There has resulted in a 6% rise in card fraud, now valued at £328 million and caused largely through purchases over the internet and by telephone.
5 March
The Association of Chief Police Officers (ACPO) has today sent an intelligence report to the financial industry and forces across the UK examining the scourge of mortgage fraud, given a value in the region of £700m a year. The report was commissioned in response to a significant increase in mortgage fraud in 2007.
The report found that with low detection rates and huge potential profits, mortgage fraud is an increasingly attractive option to criminals who wish to make money or to launder their ill-gotten gains.
The report highlights the need for vigilance in the financial and property sectors to reduce the number of victims who range from institutions giving loans which will never be repaid, to individuals being out of pocket after buying a property only to find it has been greatly overvalued.
Victims of mortgage fraud have a variety of remedies available to them including disclosure, freezing and search orders. They may also be able to seek contributions from third parties such as mortgage brokers, valuers and solicitors.
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