The more that becomes known about this bizarre affair, the more serious the failure in internal control seems to look. This kind of thing might have been understandable enough in old-fashioned, inadequately regulated, one-man band and essentially crooked fund management operations like Barlow Clowes. But Morgan Grenfell?
It transpires that quite a number of the unquoted investments were valued for the trusts by their own manager, Peter Young. While this is no doubt legal, you don't need to be trained in these things to realise that it is also highly questionable. Mr Young had a vested interest in seeing his trusts perform and therefore a clear conflict of interest when engaged in the valuation process.
Worse, we have been unable to find anyone who has ever heard of the Norwegian unquoted companies the trusts put their money into. This might be understandable enough in a large economy with lots of businesses, but Norway is a country of just 4 million people. It stretches credulity that the financial community of such a closely knit country would not have heard about companies which supposedly were about to be listed on the stock market. The best interpretation that can be put on this is that Mr Young was operating way outside his parameters as a kind of loose cannon venture capitalist. The worst interpretation hardly bears thinking about.
But most worrying of all is that Mr Young's penchant for investing in companies no one had ever heard of went unchecked for so long. All over the City, fund managers and their trustees will be rethinking and re-examining their controls. The regulators too will have to take a second look at the strategy that allows big players to police their own affairs. For while in this case the parent bank has had the good grace to bail out the trusts, there will come a day when it makes sense even for a big player to cut and run.