Co-op threatens to call in SFO over offshore payment

Andrew Regan and colleague pictured secretly meeting Co-op executive in a Buckinghamshire hotel car park

The Co-op turned up the heat on Andrew Regan's Lanica Trust yesterday when it threatened to call in the Serious Fraud Office unless it received answers to several questions relating to a pounds 2m payment to a Cayman Islands company.

The threat comes as Mr Regan prepares to deliver sensitive Co-op documents to the High Court today as he attempts to launch his pounds 1.2bn bid for the whole society including the Co-op bank, the funeral parlours and the supermarkets.

In a letter sent to Mr Regan by Graham Melmoth, the CWS chief executive, Mr Melmoth casts doubt on Lanica's explanation that a pounds 2m payment to Ronald Zimet of Trellis International in 1995 was made for assistance in negotiating an extension of a deal between the CWS and Hobson, a food company controlled by Mr Regan.

It says both Allan Green and David Chambers, the two suspended CWS managers responsible for the deal, have said they knew nothing about Trellis or Mr Zimet. They have told the CWS that negotiations between the two companies had been conducted directly with Mr Regan with no use of a middle man.

The letter states: "If the 'Trellis role' was fully disclosed at the time, presumably you will have no difficulty in telling me what [Mr Zemit's] role was, why you were prepared to pay in excess of pounds 2m for it and who at the Co-op was told about it."

It closes: "These are simple and straightforward questions which call for simple and straightforward answers. If these do not reach us by close of business tomorrow [today] arrangements will be made to see representatives of the Serious Fraud Office."

SBC Warburg, Hobson's former financial adviser, cast further doubt on the validity of the payment yesterday. It issued a statement saying: "Contrary to recent press reports, SBC Warburg confirmed today that Swiss Bank Corporation did not 'clear' a payment made to Trellis International by Hobson plc in January 1995."

SBC said it was informed of the extension to the supply agreement in January 1995 "but not of the payment to Trellis". The bank said it was not informed about the payment until March of that year. It said it resigned as financial adviser to Hobson "shortly thereafter."

The Warburg statement contradicts a version made by the Regan camp at the weekend when it claimed Warburg's had been aware of the payment and approved it. The bank said yesterday that it resigned shortly after learning about the payment.

Separately KPMG, the accountancy firm that was Hobson's auditors said it only signed off the company's accounts following assurances from both Mr Regan and his fellow director David Lyons, that everything was in order. It said that if that assurance had not been forthcoming it would have to had qualified the accounts.

The issue is complicated by the fact that some of the advisers who were working with Mr Regan at the time of the Hobson deal, are now representing the CWS and vice versa. One adviser who worked on Mr Regan's affairs while at Swiss Bank is now representing the CWS at the merged SBC Warburg.

Another connection is that KPMG, former auditor to Hobson, is also auditor to the CWS. Furthermore it is KPMG that is working on the investigation of business dealings between Mr Green, Mr Chambers and Andrew Regan. KPMG also dismissed any suggestion of conflict on interests. "We don't believe that is the case. The forensic accounting team conducting the investigation is run out of Manchester. The audit team at Hobson was run out of London. The Chinese walls are in place."

SBC Warburg said it did not have details on who Trellis International or Mr Zemit were or what the payment was for. Though Mr Zemit has been described by the Lanica camp as a UK-based businessman, records filed at Companies House show he has no UK directorships.

As the bid battle became even more intense, CWS chairman Lennox Fyfe repeated that none of the society's assets were for sale. "I'm aware of what people in the society are saying. I haven't spoken to a single person who supports Mr Regan."

The display of a united front came as it emerged that Mr Regan has missed the deadline for calling a special meeting to discuss his proposals before the CWS agm on 17 May. The deadline passed on Friday.

Mr Regan is expected to comply with a court order demanding that he return sensitive Co-op documents to the court and say how they were planned to be used. If he can prove he is not using confidential information, Mr Regan is expected to go ahead with this audacious pounds 1.2bn break-up bid for the CWS. It could come later this week.

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