Tchenguizes set to sue for £100m after court attack on SFO
High Court ruling condemns Serious Fraud Office's 'unfair and inaccurate' evidence before arrests of brothers
The Serious Fraud Office was left reeling last night after undergoing a withering attack from the High Court over its bungled dawn raids on the millionaire Tchenguiz brothers last year.
Detailing a series of errors and misrepresentations in the case, two of the country's most senior judges ruled that the SFO had unlawfully obtained search warrants on the millionaire property tycoons following an investigation into the collapse of Icelandic bank Kaupthing.
The ruling paves the way for more than £100m of compensation claims from the two men, who both said they would sue.
It piles huge pressure on the new SFO director, David Green, who instructed staff to drop the case into Vincent Tchenguiz within a week of his arrival in the job.
The High Court yesterday found that the SFO had cut corners due to its severe financial constraints. Its budget crisis can only worsen as the organisation has been ordered by the Coalition Government to make further cuts at a time that it faces large and complex cases including the Libor scandals and the Weavering hedge fund collapse.
The brothers were arrested after 6am swoops on their homes and offices last March which were justified by the SFO on the grounds of evidence supplied by the administrator of the collapsed Icelandic bank Kaupthing.
The pair claim publicity surrounding the high-profile arrests meant their businesses suffered huge damage.
The court described as "both unfair and inaccurate" oral evidence the SFO gave to the judge when it was applying for the warrants, and declared "the tone of that evidence was unjustified".
It said the judge would not have granted the warrants if the SFO had given a fairer reflection of the case.
The SFO was also harshly condemned for failing to get adequate independent scrutiny of its evidence. Five of the six lawyers sent to investigate were SFO employees, a flagrant breach of best practice. The SFO relied too heavily on the allegations of Kaupthing's administrator, failing to challenge its claims adequately.
Robert Tchenguiz, who is still under investigation by the SFO, said: "As a result of the SFO's unlawful actions I and my family have suffered enormous damage, not least to my reputation. I now intend to pursue my claim in respect of the damages I have suffered as a result of the SFO's illegal actions."
Vincent Tchenguiz has pledged to sue the SFO for £100m, and last night talked of "the substantial personal and business costs and losses" he had suffered. "It has taken an inordinate amount of time for this to be resolved … as anyone in business will tell you, time is money."
Bank of America Merrill Lynch foreclosed on a £125m loan which he says pushed his Peverel property group into administration. Other banks refused to deal with him, he claims.
The court stated that the SFO's failures were against a backdrop of scarce financial resources. The organisation has faced further cuts under the Coalition Government's austerity regime. It has been ordered to slash its budget from £34m last year to just £29m by 2014. "It is clear incalculable damage will be done to the financial markets of London if proper resources, both human and financial, are not made available for such investigations and prosecutions in the financial markets of London," the judgment says.
The SFO acknowledged mistakes had been made, and said Mr Green, the new director, had begun a reorganisation.
But it added: "The investigation continues with renewed vigour."
Heavy-handed dawn raid that backfired
On 9 March last year, at about 6am, Vincent Tchenguiz woke to the sight of the City of London police in his bedroom. They were polite and even gave him time to take a shower and get dressed. But then he was arrested and taken to a City of London police station, where he was left waiting for 10 hours with no books, magazines or phone. All he had for company was a seatless toilet and a document containing the allegations against him over the collapse of Kaupthing in 2008.
Robert Tchenguiz underwent similar treatment.
Clearly, the inside of a grey police station was an unfamiliar sight for the multimillionaire brothers better-known for their lavish lifestyle of yachts, parties and glamorous young women. Their empires had come under huge strain from the financial crisis, sure, but neither thought they were about to be raided by the cops. Robert had learned from a newspaper that he was being investigated, but his offers of help and co-operation with the SFO had, he says, been politely declined.
Vincent says he had no inkling of any inquiry. So carefree had he been that he was planning that very day to jet off to Cannes and the early spring sunshine of the Mipim property trade fair where his yacht Veni Vidi Vici was berthed and ready to party.
Make no mistake, these arrests were clearly timed to have the maximum impact among the public and the property world. The media had even been tipped off to arrive at the brothers' Mayfair headquarters to take photographs of police carrying out boxes.
However, the SFO's high-profile approach has backfired now as the pair both look set to use it as a lever to ratchet up the damage payments. Robert Tchenguiz was last night quoting the judgment's condemnation of the raids as being a blaze of "self-engendered publicity" from the SFO.
Such heavy-handed tactics by officials have their place. The threat in the US of the "perp walk", where suspected perpetrators of crime are paraded in handcuffs to the courtroom, rightly fills would-be rogues with fear. But the prosecuting authorities had better be sure of their facts first.
Case study: SFO claims
The allegations at the heart of the SFO's case were, in the words of Lord Justice Thomas, "not complex", making the investigators' failure to represent, or perhaps even understand the pair's financial dealings fairly all the more grievous. Essentially the SFO was questioning how the pair had taken out loans from Kaupthing to fund their investments. They alleged the value of Robert Tchenguiz's assets being used to obtain the loans was inflated and that there was no commercial logic behind Kaupthing's decision to lend to him. In his address to the judge issuing the search warrant on Robert Tchenguiz, the SFO's advocate said: "These agreements of hundreds of millions of pounds were basically done across a meal in a nightclub with no paperwork at all: and they used money market loans, in one case 36 money market loans to get nearly 400 million out to Tchenguiz." The judgment ruled such language was far from analytical enough. The brothers deny wrongdoing and Vincent is no longer under investigation.
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