Versailles chief guilty of huge fraud against investors

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The former chief executive of Versailles, the one-time stock market darling which collapsed into insolvency in 2000, was yesterday found guilty of having orchestrated a massive fraud against many of his former business partners.

The former chief executive of Versailles, the one-time stock market darling which collapsed into insolvency in 2000, was yesterday found guilty of having orchestrated a massive fraud against many of his former business partners.

Carl Cushnie, who made £29m from the failed company, faces a prison sentence after a jury at Southwark Crown Court decided he had defrauded a series of individuals who invested millions of pounds in Versailles.

Those close to the case believe Mr Cushnie, 53, could expect a sentence of about four years behind bars. He was not found guilty of a charge that he had sought to deceive the banks which lost £70m from lending money to Versailles.

Mr Cushnie's former business partner, Fred Clough, 66, is thought to have taken £19m from Versailles, but pleaded guilty to the fraud and turned star witness for the prosecution. He is also almost certain to be jailed when the two are sentenced on 8 June.

The Serious Fraud Office has now begun the process of trying to recover the money that the two took, in the form of cash in bank accounts and luxurious possessions including a £5m villa near St Tropez and expensive cars.

While the fraud is dwarfed by some of the recent examples of financial wrongdoing in other countries in recent years, Versailles represents one of the largest cases of misappropriation of funds in the UK.

Yesterday's verdict is also the final note in a corporate story which seemed, and turned out to be, too good to be true.

Versailles opened for business in 1991 as a modest trade finance company, offering loans to small and medium-sized companies which supplied goods to other businesses when they were waiting for their clients to pay up.

The model - solid but unexciting when executed by others - seemed to be a spectacular success in the hands of Mr Clough and Mr Cushnie, two minor businessmen who had previously worked together in the computer software industry.

Versailles' shares soared from just 7p when it first listed on the junior AIM to £2.50 after it gained entry to the FTSE 250. At its is height, Versailles' market capitalisation was £630m.

Versailles supposedly sourced the funding for the bridging loans from individuals, known as traders, who were investing with Versailles in order to make a return on their money.

Yet the SFO's four-year investigation has revealed the business was more like the Hall of Mirrors at the heart of its French palatial namesake than a solid company. While the traders - mostly wealthy private investors - pumped millions of pounds into Versailles, practically none of it was used to finance genuine loans to companies.

Giving evidence in court, Mr Clough, who held the post of finance director, admitted that Versailles made only one trade finance loan during the eight years of its existence, and that made a loss. Instead, the money was passed through a complex web of shell companies and circulated back to the traders. As a consequence, over a short space of time, a black hole opened up between the true turnover of the company and the amounts that Versailles said it was making in order to create a pretence of rapid growth.

Mr Clough, a trained accountant, told the court baldly: "I produced false figures every month". Standing just a few feet from the man with whom he used to work closely, he added that those figures bore "no resemblance whatsoever" to the true state of the business.

While Mr Clough unveiled in detail during the four-month trial the way that Versailles' shareholders, business associates and banks were deceived, Mr Cushnie passed up his chance to take the stand to give his version of events. His lawyers have argued that he left the "day to day" running of Versailles to Mr Clough and was therefore unaware of the fraud.

As well as detailing the intricacies of the way the deceit was brought about, the prosecution spent a considerable time spelling out all the details of the lavish lifestyle that Mr Cushnie and Mr Clough adopted.

Mr Clough, whose private life was described as "colourful and tangled", used some of the money he took out of Versailles to buy a £2.2m mansion in Surrey, in which he installed a mistress, the court heard. He also acquired 60 acres of agricultural land and splashed out on a string of other properties.

Meanwhile Mr Cushnie allegedly used nearly £30m he raised by selling shares in Versailles to buy a villa on the Côte d'Azur and to pay off spending on his Harrods gold card and other credit cards.

Mr Clough maintained he was maintained that he was "basically an honest person".