22 June 2015
8 min read
Was that investment really a scam, was it really bound to fail? A falsehood from beginning to end? Are those lies uttered by the suspect part of a dishonest scheme, or just the sales patter of an enthusiastic true believer who has gone too far? Sometimes the only difference between riches or prosecution is success.
Selling shares in firms that don’t exist is one thing. That’s an ‘investment fraud’ but the prosecution can present it to the jury as really just a sophisticated con trick. What about selling perfectly lawful investment schemes to the public that most people wouldn’t touch with a barge pole? Some of the so called pension ‘liberation’ schemes provide a good example. It is perfectly legitimate for an investor to take his/her money out of their pension scheme and perhaps invest the money elsewhere. There are firms out there that will do all the formalities, for a fee. The Pensions Regulator has advised the public that these schemes often make little economic sense and can leave the individual much the poorer. Bad or poor investing is however not the same as fraud. That is why we have regulators such as the Pensions Regulator and the Financial Conduct Authority. Their very existence recognises highlights that there is a difference between dishonest schemers, and the very different animal of, for example, the mis-informed or over-zealous broker.
The authors, between them, have or currently are, defending accountants, investment brokers, hedge fund managers, directors, mortgage brokers, independent financial advisors and so on. All of these cases are markedly different. All are hugely complex, yet all have the same key ingredient at the very heart of the case; the question of dishonesty. Whether it’s a Fraud Act prosecution, a conspiracy to cheat allegation or conspiracy to defraud case the prosecution fails unless the jury is persuaded, to a very high standard, that the intent of the defendant was a dishonest one. Not only was the investment scheme a dishonest one, but the defendant knew it and dishonestly took part.
The way the law determined whether there had been dishonesty used to involve applying the Ghosh test. It was an approach set down by the Court of Appeal in the case of Ghosh (1982).
The Court of Appeal stated that there were two stages to the test for dishonesty. The first stage involved the jury being directed to decide whether, “according to the ordinary standards of reasonable and honest people what was done was dishonest”. This was based on the assumption that “what was done’’ had already been proven. If the jury decided that “what was done was dishonest’’, they then had to consider the second stage. This was whether the defendant “himself must have realised that what he was doing was by those standards dishonest’’.
What the Ghosh test did was put a reasonable ordinary man in the shoes of the defendant and ask if what was done was dishonest and whether the person who committed the dishonest act knew they were being dishonest when they committed it. While it was up to the prosecution to prove dishonesty, the situation dictated that a defence team had to be proactive in showing that the defendant acted honestly, or at least with no dishonesty.
That test in criminal cases, however, is now history. This is due to the Supreme Court civil case of Ivey v Genting Casinos UK Ltd (t/a. Crawford’s Club) (2017). It is a case that simplified the test of dishonesty.
Mr. Ivey had used a technique called edge sorting in a card game to win £7M in one night at a Mayfair casino. He had asked the dealer to serve the cards so that he could see the edge he wanted to and said he wanted this done because he was superstitious, which wasn’t true. The casino accused him of cheating, would not pay him the £7M and so he sued.
He argued that what he did was not dishonest. The Supreme Court considered the difference between how the civil courts decided dishonesty compared with the criminal courts. In the civil courts, there was no requirement to establish the second part of the Ghosh test - that the accused person must realise that what he was doing was dishonest. All that had to be established was that a person had acted dishonestly.
The Supreme Court decided that the Ghosh test was wrong and that the law needed simplification. As a result, a prosecution now only has to prove that what was done was dishonest objectively. It no longer has to establish that the person acting dishonestly knew that they were being dishonest. The criminal law test of dishonesty is now as straightforward as that in civil law.
All defenders in these types of cases must keep the question of dishonesty at the heart of their strategy for the case.
Fraud work is often seen to be the less exciting relation to the blood and guts of everyday criminal litigation. Nothing could be further from the truth. Demonstrating honesty, without sounding defensive, requires tapping into the ‘human condition’; understanding the peculiarities of the defendant’s nature and practices which may require him to appear before a jury, an innocent man, with a lot of explaining to do.
Defendants understand this; it is often the case that those innocently caught up in these sorts of cases will be concerned that the jury will simply not understand them, and that they will not appreciate the need for the complex financial arrangements at hand, or will instinctively be suspicious of the motives of those in the dock who are presented in the prosecution’s Case Summary as sophisticated and avaricious thieves without a shred of compassion for those they fleece. Those defendants know the explanation of they are not is long and complicated and requires an understanding of their particular industry and their personal background — i.e. not just a ‘knowledge’, but a real understanding of how, for example, accountants audit accounts, or how investment brokers earn their fees. Faced with having to explain so much it is no wonder that defendants in these circumstances worry — a great many will have never been in trouble before.
The key is to remember dishonesty is always at the heart of the case and that creating empathy is at the heart of demonstrating honesty. It is vital for defenders to get under the skin of those they represent. To truly put the jury in the shoes of the innocent defendant the jury must know the man, know his motivation, understand his impulses, his pressures, his foibles his strengths and weaknesses and then, and only then, ask ‘can I be sure he was acting dishonestly?’
Of course the defence can use experts to demonstrate industry norms and accepted practice. But more than that, experts can really be put to good use when it comes to creating empathy with the jury. So, for example, an accountant in trouble for conspiracy to cheat can use an independent expert to explain to the jury what would be professionally expected of an accountant in such and such situation, and how he or she appears to have complied with all the regulatory requirements with little that would stand out as unusual or odd.
But that only goes so far because the jury knows there was a fraud — the question is did the accountant know too — was he or she helping others? Then experts can really come into their own by an examination, for example, of other business in the defendant’s firm — a comparing and contrasting not just with industry norms but how, day to day, the evidence is that the defendant did nothing different than he or she appears to have done for any other of his or her clients. That more holistic approach helps the jury put themselves in the shoes of the defendant. This is really what the jury are looking for — it helps for them to be able to empathise with the man in the dock, as just a guy doing his job, day in day, out as best he can. Then the mountain of explanation that has to be given to explain a dodgy document, or a suspect email starts to appear surmountable. A solid defence then appears, with lots of technical aspects, but always focussed on creating empathy and demonstrating lack of dishonesty.
Many investment frauds will be huge cases in terms of the paperwork (in digital format) produced in the course of the investigation and used in the trial by the prosecution — the used material. There will usually be lots of what is called ‘digital unused material’. This is simply material stored on computers that have been seized and examined, which the prosecution is not relying on.
In July 2011, the Attorney General produced his ‘Supplementary’ Guidelines on disclosure in relation to digitally stored material. That document coupled with Lord Justice Gross’ Review of Disclosure from September 2011(see now Attorney General’s Guidance, December 2013) provides defenders with ammunition to positively engage and influence the way investigators handle the seized digital material. For example, the defence can ask the Crown to explain why it is looking for certain key words in digital searches — a little known power, but one that can help defenders understand the mind-set of those conducting the searches and make their own search term requests in response.
The seizure of numerous computers by police/customs from suspects can cause real practical problems in terms of scheduling the material on the computers. Somewhere in there maybe emails, documents letters that help the defence case or weaken the prosecution’s case. How do you find it? By ensuring that the prosecution properly schedule all the digital unused material; i.e., the seized material not being used by the Crown; this is called the Schedule of Unused Material or the MG6C. Scheduling, using broad generic terms, e.g., “Emails form A Ltd to various investors in May 2013” is what is required under the Guidelines and the Gross Review. Even using common-sense broad descriptions the scheduling process can be a very big task on substantial fraud cases. Nonetheless, that is what is required in such cases. Our experience is that different prosecutions will take on a different approach to the issue of digital unused material. But failing to properly apply the Guidelines can be a fatal mistake — concerns about the disclosure process cannot be cured by warnings to the jury or the exclusion of evidence.
If the process on digital unused material is not followed properly then there are solid arguments that no fair trial can take place. These are far from straightforward arguments and require early identification and the proper laying of a solid foundation for argument.
Defence Case Statements are taking on increasing importance. This is especially so where there are huge amounts of unused material as there will be in an investment fraud. It is vital that DCSs are drafted with care and skill because in investment fraud cases the real gems for defenders will often lie in the unused material — thus the importance of the MG6C. For example there maybe reams of material about similar transactions to the ones under scrutiny which raise no concern, or other evidence that patterns of behaviour highlighted as suspicious are in fact quite usual. It all depends on the facts but that empathy, that vital understanding of the defendant, his business and his motivation needs to be reached at any early stage so that the DCS maximises the potential for the fullest possible rights of disclosure. As the saying goes ‘failing to prepare is preparing to fail’.
Dishonesty is always the essence of an investment fraud allegation and the building of a positive case against those inferences of dishonesty will usually require a deep and early understanding of the whole case, so that the disclosure process is maximised in favour of the defence. That way the job of building empathy and understanding can start straight away.
Jonathan Lennon is a Barrister specialising in serious and complex criminal defence cases. He is based at 33 Chancery Lane Chambers in London. He has extensive experience in all aspects of financial and serious crime and the Proceeds of Crime Act 2002. He is ranked by both Legal 500 Chambers & Ptnrs & is recognised in C&P’s specialist POCA and Financial Crime sections; ‘he is phenomenal and is work rate his astonishing’ (2015).
Aziz Rahman is a Solicitor- Advocate and Partner at the leading Criminal Defence firm Rahman Ravelli Solicitors, specialising in Human Rights, Financial Crime and Large Scale Conspiracies/Serious crime. Rahman Ravelli are members of the Specialist Fraud Panel and have been ranked by Legal 500 as an 'exceptional' firm with Aziz Rahman being described as 'top class’'. The firm is also ranked in Chambers & Partners. Rahman Ravelli are a Top Tier and Band 1 firm.