Three former directors of Wickes, the DIY retailer, were cleared of fraud charges yesterday after a 10-month trial that could cost the taxpayer £40m.
The jury at Southwark Crown Court took eight hours to reach its verdict that delivers another blow to the Serious Fraud Office, which brought the charges.
The three former directors, including the former chairman and chief executive Henry Sweetbaum, were cleared of a complex £20m accounting fraud that inflated profits and brought the DIY group to the brink of collapse.
Mr Sweetbaum, 65, appeared close to tears as the jury reached its verdict. The other defendants cleared included the former Wickes finance director Trefor Llewellyn, 55, and the former finance director of Wickes Building Supplies, Terence Carson, 52. They will now be able to apply for costs which are likely to run into millions of pounds.
The ruling ends a seven-year saga that started when the fraud was first uncovered in 1995. The prosecution alleged that Wickes accounts were fraudulently overstated by £20m between 1994 and 1996 through the issue of a two-letter system involving suppliers. The letters shown to the company's auditors included no mention of financial contributions from suppliers that were included in the deals. But these terms, which would have required the payments to be spread over several years, were detailed in the letters sent to suppliers.
The three defendants denied any knowledge of the two-letter system. They had all been charged with fraudulent trading while Mr Sweetbaum and Mr Llewellyn had also been charged with making false statements to the company's auditors, Arthur Andersen.
The three agreed that with "hindsight" they accepted there was a profits fraud. But they denied they knew of it at the time or played any role in deceiving the auditors. The trio took out insurance to cover their defence costs of around £4m each.
Mr Sweetbaum argued that, while accepting a fraud had occurred, he had been "substantially destroyed" by a "blinkered" prosecution. The three men insisted that evidence showed the deception was centred on the buying department, and their lack of detailed involvement with that part of the group made it easy for them to be kept in the dark.
Mr Sweetbaum insisted in the witness box that he was not "the money-grabbing" greedy, dishonest character he had been painted by the Crown, and would never have risked his "reputation, fortune and liberty in a fraudulent venture doomed to almost certain discovery".
The judge ruled that the jury return a verdict of "not guilty" on a fourth former Wickes director, Geoffrey Battersby, who was group financial controller. The judge said there was no case to answer.
The SFO denied that the case was a setback. "This year has been pretty successful with convictions in all but one of the nine cases brought so far this financial year," an SFO spokeswoman said.
Wickes survived the scandal thanks to a £57m rights issue. Wickes was taken over by Focus Group in a £289m deal in September 2000. The combined group attempted a £700m stock market flotation earlier this year but was forced to abandon it due to tumbling markets.
A statement issued through Mr Llewellyn's solicitors, Peters & Peters, said: "Mr Llewellyn believes this hugely expensive case should never have been brought against him, particularly as the trial demonstrated that the SFO's investigation team had failed to unearth critical contemporaneous documentation which would have seriously impacted upon the original and highly regrettable decision to charge him."
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