7 guilty in European biodiesel investment fraud
Seven men are facing jail after being convicted at Ipswich Crown Court for their roles in a boiler-room fraud that pulled in more than £8 million ($12,650,400). The Spanish-based operation targeted thousands of investors in the U.K. applying high-pressure telesales techniques to push shares in a biodiesel company, Worldwide Bio Refineries. The one defendant who pleaded guilty gave evidence for the prosecution. They are to be sentenced on Sept. 23 and are remanded custody.
Dennis Potter who lived in Singapore was found guilty of conspiring to defraud investors in his company, Worldwide Bio Refineries Ltd, during 2005 and 2006. His fellow company director Redmond "Ray" Charles Johnson pleaded guilty to the same offense.
Five other men, who were responsible for the management of boiler-rooms, were also found guilty of being conspirators. They are Steven John Murphy and Greg Pearson, both of Marbella, Paul Daniel Murphy and Lee Eliot Homan, both of Hertfordshire. Peter Bibby of south London who absconded before trial was tried in absentia. There is a warrant for his arrest.
Commenting on the convictions, the Serious Fraud Office Director Richard Alderman said, "This is an excellent result. Not only do boiler-room fraudsters prey on vulnerable people, they also deprive genuine businesses of the capital they need to grow. Quite bluntly, they ruin lives. I am delighted that the SFO is playing its part in tracking down operations like these and bringing fraudsters to book."
Worldwide Bio Refineries
WBR was incorporated in 2003. It had a processing plant in Co. Durham that was purported to produce diesel fuel from vegetable matter. It also had a plant in Singapore producing diesel intended to be marketed in the U.K.
The directors of WBR (Potter and Johnson) were previous business associates of a Robert Alan Scott who operated a company called Alternative Diesel Investments Ltd ("ADI"). ADI attracted investors through the use of boiler-rooms, though the company generated no revenue. This arrangement was therefore completely fraudulent. Scott and ADI were subsequently investigated as one of a number of interlinked boiler-room cases examined by the SFO. Scott was jailed in early 2010 for these activities.
In 2004 Scott was having some difficulties with ADI's bank, Barclays, which suspended the ADI account because of concerns about ADI monies being transferred to an offshore account in increasingly larger amounts per transfer (e.g. £150,000). Over £303,000 remained in the suspended account. Scott wanted to get it out. To do this, Scott linked up with Potter and Johnson. Thus ADI and WBR were to become entwined in a fraud.
Scott submitted to the bank in 2004 a new business plan for ADI which proposed investing the suspended ADI money in a new biodiesel production plant in Teesside. The plant was to be supplied and constructed by WBR and the money would be paid to WBR against invoices presented to the bank as genuine trading liabilities. Barclays understood WBR to be a viable and active commercial concern, although it was a dormant company with less than £20 in its bank account and released the ADI money on the condition that it was used to make payments to WBR.
Assisting Scott in his representations to the bank was a John Hallworth, who pleaded guilty in November 2008 for a separate boiler-room case, and is due to be sentenced separately at a later date.
Sales of ADI shares started again in May 2005, assisted by a loan from WBR that was used to pay off some of the outstanding commissions to the boiler-rooms. In September 2005, Potter and Johnson struck a deal with the boiler-rooms in which WBR shares would be sold. Soon afterwards WBR received the bulk of the ADI funds and engineered a takeover of the company.
The share selling was undertaken by salesmen working from a number of boiler-rooms in Marbella and Barcelona although many of them used false names and claimed to be calling from offices Frankfurt, Stockholm or Amsterdam. The business prospects of the company and the biodiesel market were inflated by WBR's directors and the salesmen, who claimed that substantial international business was being done and that the business' shares were valued at £110 million.
Investors believed that their investment in a successful biodiesel enterprise would net them significant short term returns, bolstered by claims that WBR was to be floated on the stock market which would result in a significant increase in share value. These claims were bogus. The reality was that the U.K. biodiesel plant produced no output and, with only limited imports coming from the Singapore plant, WBR was not being managed with any intention of it becoming a growing commercial success generating profits from sales of biodiesel. WBR was simply a vehicle for fraud.
Virtually all of WBR's revenue during 2005 to 2007 was generated by share sales (99 percent). The biodiesel product income was negligible. Of the £8.2 million attracted from investors, around £4 million was transferred to accounts in Cyprus, Jersey and Spain for the benefit of the boiler-room salesmen. Johnson, Potter and family members directly received over £710,000. Additionally, use of WBR business expenses allowed them to play the role of international businessmen, through trips abroad amounting to £2.2 million. The rest was used for investments and miscellaneous payments.
Investigation and Proceedings
Victim complaints triggered the Financial Services Authority to issue investor alerts about several of the boiler-rooms, and also sent warnings to both Johnson and Potter, as Directors of ADI, when it became apparent that high pressure unauthorized investment business was being conducted to sell its shares.
Suspicions of related boiler-room activity were considered by the police forces of Norfolk and Suffolk referred the case to the SFO in 2005 and continued to support the investigation. Arrests and searches relating to ADI were made in October and November 2005 and as a result of these actions it became clear that WBR and its directors were involved. Searches were conducted of WBR and its directors' premises in May 2006 and searches and arrests of individuals connected to be boiler-rooms were made in London and the Home Counties in October 2009 with further arrests as suspects entered the U.K. from Spain. The defendants were charged at various dates during 2009 and 2010. The trial opened at Ipswich Crown Court June 6, 2011. Johnson pleaded guilty and gave evidence for the prosecution under a plea agreement. The jury retired to consider the verdicts on Sept. 8.
Confiscation proceedings in relation to the case will take place at court on a date to be fixed.