SFA may act over NatWest's missing pounds 90m

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The Serious Fraud Office and the Securities and Futures Authority were last night considering whether to launch investigations at NatWest Markets after the investment bank announced the resignations of six senior traders and directors over a deliberate cover-up to hide losses of pounds 90m in its interest rate options business.

A spokesman for the SFO said that it had been fully briefed by NatWest and was examining whether or not a complex fraud had taken place. An announcement on whether it will initiate criminal proceedings is expected in a matter of weeks.

The SFA, the main regulatory body for the City, meanwhile said it was examining the conduct of the traders and directors involved to see whether disciplinary action was necessary. The SFA has the power to fine and suspend individuals or bar them from working again in the City altogether.

An independent report into the affair carried out by the lawyers Linklaters & Paines and the accountancy firm Coopers & Lybrand, has been sent to the Bank of England and the SFA. The inquiry found evidence of "deliberate concealment and weaknesses in the operations and internal controls" in NWM's London-based interest rate options business. The mispricing went unnoticed for two years.

However, it concluded there was no evidence that clients had suffered any losses or that the concealment had been carried out for personal gain as a result of collusion with third parties.

The full report is not being published for legal reasons and to protect commercial confidentiality. But NatWest said its main findings were that:

r The original losses occurred on mark and sterling interest rate swap options and options books.

r The losses were concealed by deliberate mispricing and over-valuing of options.

r Unauthorised transfers of value took place between options books to conceal losses and transfer false profits.

r NWM did not have sufficiently robust procedures for checking the pricing of options.

Martin Owen, the chief executive of NWM, resigned last week and is expected to receive a pay-off of around pounds 1m. Yesterday NatWest said that a further six employees had left or were leaving the business. The most senior resignation is that of Philip Wise, 48, NWM's chief administration officer, who was senior managing director of its debt capital markets during the time the mispricing was taking place. He was on a one-year contract and will receive a pay-off of pounds 200,000-pounds 300,000. No one else will receive compensation.

Kyriacos Papouis, the 30-year old trader at the centre of the scandal, left NWM last December and has since resigned from his new employer Bear Sterns. He is at home in his north London house and is being advised by Stephen Pollard of Kingsley Napley, the lawyer who defended Nick Leeson, the Barings rogue trader.

The other employees who have accepted responsibility because of their positions within the division and resigned are Neil Dodgson, global head of interest rate options and Mr Papouis' immediate boss; Jean Francois Nguyen, managing director global swaps and derivatives; Ian Gaskell, head of swaps and options trading; and Andrew Grout, manager of the London position keeping team, a back office member of staff whose job it was to reconcile trades and keep track of unusual trading positions. Christophe Lanson, head of risk rate management, was not found to be responsible for any losses or false profits but is leaving NWM anyway.

It is thought highly likely that the SFA will launch formal proceedings against some or all of those involved, given the language used in the report and the reference to deliberate concealment and false adjustments to options books.

But it is less clear whether the SFO will take action since no evidence of personal gain or loss to clients has been found. Mr Papouis has co- operated with the Linklaters/Coopers inquiry and is understood to have told investigators that he did not deal in sterling options, where some of the losses occurred.

NatWest said it refused to pay compensation to those who were leaving, other than Mr Wise.

Comment, page 23

How the chain of command failed



Kyriacos Papouis, 30, the trader at the centre of the affair. Left NatWest Markets in December, 1996 after covering up losses and creating false profits over a two-year period. Subsequently resigned from Bear Sterns

Ian Gaskell, 34, head of swaps and options trading. Resigned in recognition of responsibilities as head of business unit in which losses occurred



Neil Dodgson, 33, global head of interest rate options and Mr Papouis' immediate superior. Failed to supervise Mr Papouis and has resigned





Jean-Francois Nguyen, 37, managing director global swaps and derivatives. Resigned in recognition of responsibility as head of business unit in which losses occurred





Andrew Grout, 35, manager of London position-keeping team. Failed in his duty to alert management to unusual transactions

Philip Wise, 48, senior managing director of debt capital markets. Accepted responsibility as most senior manager and resigned but will receive pounds 200,000-pounds 300,000 pay-off