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February 22, 2012 9:28 pm
The litany of mistakes admitted by t he Serious Fraud Office over its investigation into the Tchenguiz brothers would be damning at the best of times.
But these are not the best of times for the agency, and an embarrassing mea culpa that acknowledges “human error” and “inadvertent miscasting” of allegations in one of its most high-profile cases threatens not only its probe into Robert and Vincent Tchenguiz, the billionaire property investors, but also the very reputation of the SFO itself.
The SFO has, very publicly, been investigating the collapse of Kaupthing, the Icelandic bank, since December 2009. It has pulled nearly 30 investigators and lawyers on to the case, not including external advice from counsel.
The SFO is probing whether value was extracted from Kaupthing immediately before its demise. The case against Vincent centred around a £100m Kaupthing loan, known as the Pennyrock agreement, made to a family trust. The brothers have not been charged with any crime and strongly deny any wrongdoing.
Lawyers’ letters read by the Financial Times reveal investigators did not see key documents, incorrectly obtained warrants to search Vincent’s properties, and inaccurately summarised a report provided by Grant Thornton, Kaupthing’s receivers.
This led to an SFO allegation in court documents that Vincent had not disclosed to Kaupthing the existence of senior lenders – including the Royal Bank of Scotland, Merrill Lynch – that would have priority ahead of Kaupthing on any assets pledged as collateral to the loan.
But Kaupthing revealed in a civil lawsuit last summer that it was aware of the senior lenders. The loan agreement, a copy of which has been reviewed by the FT and was also disclosed to the SFO, mentions senior lenders 141 times.
In a letter dated 21st February from the Treasury Solicitor’s office, which is representing the SFO, the agency admits its case team “inadvertently miscast” the original Grant Thornton report “so as to include the additional and unwarranted suggestion that senior lending had not been disclosed.”
It is unclear, even within the SFO, how 141 mentions of senior lenders were overlooked and how this allegation found its way into court documents, despite senior SFO lawyers being drafted in to oversee the case team.
An internal investigation was opened in autumn. No one within the SFO has faced disciplinary proceedings and it is the agency’s case that any error was inadvertent. Its investigation into both brothers continues, and it will present its full arguments in court in May.
The SFO was already facing scrutiny before this latest setback. It is being independently inspected for the first time in its history, with an audit of how cases are chosen and pursued.
That has led to fears among SFO insiders over the agency’s future, not least because the current director, Richard Alderman, will step down in April. It only survived a last-minute reprieve from being rolled into a wider crime agency last summer.
On being told the contents of the letter, Jonathan Fisher QC, a barrister, said: “It’s almost like the final denouement, how much worse can it GE?”
Additional reporting by Jane Croft in London
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