David Conn: Bates denies involvement as fraud case goes to court

Chelsea chairman says he had no knowledge of or shares in company at centre of alleged bank fraud in United States

Ken Bates, the Chelsea chairman, has emphatically told a court in New York that he was not involved in a $20m (£11.2m) bank fraud alleged to have been perpetrated by a company, Chelsea Acquisitions, of which he was named as a shareholder.

Giving sworn evidence at the United States embassy in London last September, which was videotaped and played in the major US criminal trial recently, Bates said he owned no part of Chelsea Acquisitions and had never even heard of the company before he was visited by the Metropolitan Police Fraud Squad, which was helping the FBI with its investigation. Facing questions from attorneys for the US Department of Justice and the defendants, Bates added that he would not lie, and falsely deny his participation in the alleged fraud, to protect his reputation as a businessman here.

Four US-based defendants have been on trial since 3 October, charged with defrauding around $45m from five banks between 1992 and 1996, and conspiracy to defraud the US tax authorities. A fifth defendant, Stanley Tollman, a friend and former business partner of Bates, and from 1982-92 a Chelsea Football Club director, has also been charged with multi-million-dollar bank and tax frauds, but has not returned to the US to face trial. Tollman is understood to be living in the United Kingdom and, according to the US authorities, who describe him as a "fugitive", is facing extradition proceedings. His son, Brett Tollman, pleaded guilty last September to charges of evading tax by not declaring millions of dollars channelled through bank accounts in Guernsey, and is due to be sentenced later this month.

Bates' name, the court was told, appeared on crucial documents from Chelsea Acquisitions, which, the prosecution alleges, was used as a vehicle by Stanley Tollman and another defendant, Monty Hundley, to defraud Chemical Bank of $20m. The prosecution claims that after the hotel businesses of Tollman and Hundley ran into trouble in the late 1980s and early 1990s, they hatched a plan to cut fraudulently their $52m bank debts by forming companies which would approach the banks and buy the debts at a massive discount.

Chelsea Acquisitions and another company, Paternoster Second Holdings, the prosecution says, were the vehicles which "bought" the debts after the defendants told the banks they were not connected to Tollman or Hundley in any way, but were in fact owned by "European investors". Bates was said, in documents presented during his evidence session in London, to be an owner of Chelsea Acquisitions.

He was shown a letter dated 12 May 1994, on Chelsea Acquisitions' notepaper, signed by the company's secretary, Michael Ness, to the Chemical Bank. The letter confirmed to the bank that Chelsea Acquisitions would take over the debt, $21.7m, owed by Tollman and Hundley for, the prosecution alleges, just a 10th, $2.17m, thereby wiping out close to $20m. The letter, which Bates read out, stated that Chelsea Acquisitions was not owned either by Tollman or Hundley, but by him: "The ... Secretary of [Chelsea Acquisitions] hereby certifies to Chemical Bank that neither [Tollman nor Hundley] owns any legal or beneficial interest, directly or indirectly, in [Chelsea Acquisitions] and that Kenneth Bates (an owner of the Chelsea Football Club of England) holds, directly or indirectly, an ownership interest in [Chelsea Acquisitions]."

Questioned by Peter Neiman, an assistant US attorney based in New York, Bates said this was untrue. Mr Neiman asked: "Now, sir, is there any other Kenneth Bates who is associated with the Chelsea Football Club, other than yourself?"

Bates answered: "No."

"Was it true, in May of 1994, that you directly owned an interest in Chelsea Acquisitions Inc?"

"No."

"Was it true in 1994 that you indirectly owned such an interest?"

"No."

Bates was shown other documents, which purported to show that he was indeed involved in owning Chelsea Acquisitions. The first was a letter, dated 6 May 1994, on notepaper headed, "Board of Directors, Chelsea Acquisitions Inc," which read: "The undersigned hereby subscribes for one share of ... CHELSEA ACQUISITIONS, INC, at $1.00 per share."

The bottom of the letter read: "Very truly yours, Kenneth Bates." It was not, however, signed by him. The second was a share certificate for Chelsea Acquisitions, with his name typed in as the shareholder: "Kenneth Bates." Again, Bates had not signed the document.

He denied any suggestion that he owned or had invested any money in Chelsea Acquisitions; he said he had never heard of the company until he was visited by Detective Sergeant Shaw, of the Metropolitan Police Fraud Squad, who was helping the US authorities with their investigation. The investigation is understood to have been ongoing since at least 1998.

Stanley Tollman's former son-in-law, Francis Raeymaekers, has also given sworn evidence in the UK, at Bow Street Magistrates Court, where he admitted signing documents on behalf of the other alleged "sham" company, Paternoster. He said he had been asked to do so by one of the defendants, Sanford Freedman, and never inquired into the substance of the documents. Raeymaekers, an art and antiques dealer based in London, has been granted immunity from prosecution in return for giving evidence.

Bates was not asked why he thought his name appeared, without his knowledge, on documents relating to a company in which his friend, Stanley Tollman, was alleged to be involved. Asked about his relationship with Tollman, Bates said he had known him since the early 1970s, and was involved in business with him principally at a coach travel company, Trafalgar Tours International. Bates was the chairman, Tollman the vice-chairman, until Bates left in the early 1980s to run Chelsea FC full-time. He had also known Michael Ness, who is not facing any charges, for a long time; he had hired him as Trafalgar Tours' managing director. For a time the company sponsored Chelsea FC.

In the 1970s, Bates said, Tollman moved to the US, where he had another business partner, Monty Hundley - the other principal defendant in the trial. Bates said he and Tollman had still intended to cut each other in on deals but after a couple of years the arrangement lapsed.

"It didn't work," Bates said. "Mr Tollman wanted to go his own way with Mr Hundley, so by mutual agreement the deal fell apart. Stanley was in a new country, building a new career, and I suppose business-wise I became irrelevant. He wanted a partnership with Monty Hundley."

Bates said he nevertheless continued to see Tollman regularly and when Bates took over Chelsea in 1982, Tollman became a director, although he never took business decisions at the club. "I just invited him to join the board," Bates said. "It was an honorary situation. There was a title which he enjoyed."

After Tollman ceased being a director at Stamford Bridge in the early Nineties, he and Bates remained friends, eating and drinking together when Tollman was in town, and "very frequently" Tollman would be Bates' guest at "football functions, such as games, parties, dinners".

Bates, however, was adamant he had nothing to do with Chelsea Acquisitions and had never bought any of Tollman's debt or Hundley's, or been asked to do so. Asked if he would have been willing to put his name to a business deal if asked by Tollman or Hundley, Bates said he would not: "There is no upside and plenty of downside. If you put your name to something that you know nothing about, you don't know what the hell's going on, and if you are not a party to it, why should you?"

Audrey Strauss, representing Sanford Freedman, suggested to Bates that as a well known "public figure" in the UK because of his chairmanship of Chelsea FC, his association with this case had been uncomfortable: "What you call 'football' we call 'soccer?'" she asked. "It is an extremely popular sport here in the UK ... throughout Europe and the world; is that correct?"

"It is the No 1 sport," Bates replied.

"Is it fair to say that as a result of that, your activities, whether large or small, are often covered by the press?"

"Yes."

"And would it be fair to say that you were probably not happy to have your name associated with what the United States government has alleged to be a bank fraud?"

"Yes."

"Is it also fair to say that having this kind of matter associated with one's name can have a negative effect on one's reputation, both personal and business?"

"It can."

Peter Neiman, the assistant US attorney, returned to ask further questions: "Sir, would you lie in this deposition, motivated by those concerns?"

"It is an insulting question," Bates said. "The answer is no."

The trial is continuing in New York.

davidconn@independent.co.uk