British bankers charged with fraud

Three former British bankers have been charged with wire fraud in a $7.3 million scheme involving Enron, according to Deputy Attorney General Larry Thompson.

‘The Department of Justice is committed to the vigorous investigation and prosecution of criminals who prey on the liberties of our financial system,’ Thompson stated. ‘As these charges demonstrate, our investigation into the collapse of Enron Corporation is active and ongoing,’ he said.

The three former employees of National Westminster Bank (‘Nat West’) – Gary Steven Mulgrew, 40, Giles Robert Hugh Darby, 40, and David John Bermingham, 39 – were charged in a criminal complaint filed at the US District Court in Houston, TX with one count of wire fraud, in violation of 18 USC Section 1343, based on a scheme to defraud Nat West.

The complaint, filed by the Justice Department’s Enron Task Force, alleges that through a series of financial transactions, the former bank officers had secretly invested in an Enron special purpose entity, Southampton, LP, and were able to siphon off $7.3 million in income that rightfully belonged to their employer.

All three defendants were employed in the structured finance group of Greenwich Nat West, a division of Nat West with offices in Greenwich, CT, and London. According to the criminal complaint, Nat West, a bank with offices in Houston, Texas and London, England, should have received the benefit of the $7.3 million based on its own investment.

Nat West was considered a ‘Tier 1’ bank by Enron, which meant that it was among a small group of banks that did the most business with Enron and was given preferential treatment by Enron when transactions were contemplated.

The complaint alleges that Mulgrew, Darby and Bermingham recommended that an interest in an Enron-related partnership held by Nat West should be sold for $1 million at a time when the defendants were scheming with Enron executives to purchase that interest for themselves for only $250,000, and then liquidating it only weeks later for over $7.3 million. The complaint alleges that the defendants: (i) knew the details of Nat West’s interest because they helped structure it; (ii) were aware that the investment had a minimal value of between $7 million and $9 million in February 2000; (iii) represented to Nat West that $1 million was a fair price; (iv) secretly negotiated their own purchase of Nat West’s interest while still employed at Nat West; (v) along with Enron executives, set up a series of offshore entities to carry out their scheme; and (vi) all the while, were employees of Nat West that had fiduciary duties to Nat West and were subject to its compliance policies. The $7.3 million received by Mulgrew, Darby and Bermingham from the Southampton transaction rightfully belonged to Nat West, had it not sold its interest for only $1 million on the defendants’ recommendation.

Leslie R. Caldwell, Director of the Enron Task Force stated, ‘This complaint shows that we intend to address the conduct not only of Enron but also of those who capitalized on Enron’s willingness to enter into accounting-driven transactions that lacked business purpose and served instead merely to enrich those involved.’

The Justice Department’s Enron Task Force, formed in January 2002 to investigate matters related to the collapse of Enron, is made up of a team of federal prosecutors supervised by the Department’s Criminal Division and agents from the FBI and the Internal Revenue Service’s Criminal Investigations Division. The investigation that led to this particular complaint was co-ordinated with Britain’s Financial Services Authority, Britain’s Serious Fraud Office and the Securities and Exchange Commission.