Two Britons have been convicted of defrauding UK investors out of more than £80M, which was then laundered in the United States. Boiler rooms and money laundering are often close companions when such investment fraud is carried out. But the issue of guilt is not always so clear cut.
It is a case that involved thousands of UK investors losing tens of millions of pounds and has ended with Simon Odoni and Paul Gunter being found guilty of a total of 36 charges relating to mail and wire fraud and money laundering.
Prosecutors told the court that Odoni, 56, and 64-year-old Gunter employed a network of Spanish boiler rooms and used personal details taken from dormant public companies to cold call people. The people called, who were mainly elderly and vulnerable, were encouraged to buy shares that they were told were to set rise dramatically in value. The shares on offer, however, were virtually worthless and some of those who invested lost hundreds of thousands of pounds. Much of the money paid by victims was transferred into accounts in the US and spent by those running the operation on a lavish lifestyle of boats, planes, cars and properties. Odoni, Gunter and a third man, Richard Pope, are due to be sentenced in the US some time in the next two months. Pope had admitted his involvement in the gang two years ago and provided evidence for the prosecution against Odoni and Gunter.
The sheer scale of the criminal operation shows the extent to which investment fraud can be harmful. As with any case like this, however, the issue of criminality has to be established. Did those running the operation set it up and run it with the sole intention of ripping people off by taking their money in exchange for worthless items? Or were they running a scheme that, for whatever reason, simply failed to succeed despite their best intentions and efforts? The former involves people clearly acting dishonestly whereas the latter involves people acting honestly but exercising poor judgement. Even if a salesman is selling something that isn’t worth what they say it is, they may still be guilty of nothing more then overzealousness. Dishonesty has to be at the heart of all investment fraud allegations: the scheme has to be dishonest and the people running it have to know that if they are to be liable.
The issue of dishonesty was addressed by the Court of Appeal in the case of Ghosh (1982). In this case, the Court laid down a two-part test: the jury has to decide whether “according to the ordinary standards of reasonable and honest people what was done was dishonest’’ and, if so, whether the defendant “himself must have realised that what he was doing was by those standards dishonest’’. If the case against Odoni and Gunter had gone to trial in the UK, it seems unlikely they would have had a case strong enough to gain an acquittal; especially as a co-defendant had provided evidence against them. However, for many caught up in such schemes, proving their honesty can help them avoid prosecution and conviction. The level of an individual’s involvement in such schemes can take some unravelling. Prosecutors will look for the “headline’’ evidence to seek a conviction. They will portray all those arrested as driven by greed and dishonesty and point to the evidence they have at their disposal.
Faced with such a situation, defence solicitors have to look that bit further than the prosecution to establish a client’s honesty. If the prosecution is citing potentially incriminating emails then the defence has to examine all the circumstances surrounding them. Similarly, building a picture for the jury of a client’s motivations and reasons for carrying out certain activities can involve everything from expert witnesses and character witnesses through to analysis of the way the business was run. Who ran it? Who had the power and the knowledge of every aspect of what was going on in the business? To what degree were people running the business stakeholders in it or mere hired hands? Who knew what was being sold was worthless? And was it actually worthless or is that a judgement that can only be made in hindsight?
Such questions can cast doubt on a prosecution’s case. But only if a defence team can back up their assertions of a client’s honesty with clear evidence of his innocence and analysis of how and why he acted in the way he did. It may mean defence solicitors have to wade through mountains of paperwork and electronic evidence – much of which may have been classed as irrelevant by prosecutors – and it may mean seeking full disclosure of material not previously made available by the prosecution. It may take a lot of effort but the rewards for the resourceful defence team are often there to be discovered.
Fraud can take a number of forms. The Odoni- Gunter case involved investment fraud on a large scale with an equally huge money laundering operation. Fraud cases are often also very complex. This can make it tempting for prosecutors to tar everyone involved with the same brush. For example, boiler room operations seem to be on the increase in recent years, according to official figures, with those involved even going so far as to use cloned versions of real firms. The obvious response from the authorities (on either side of the Atlantic) is to assume that everyone involved is in on the deception. But that is often far from the case. We have come across staff in such operations that were no wiser about the fraud being perpetrated than the people they were trying to convince to invest in it. As you read this, it is highly possible that many innocent people are unwittingly employed in schemes similar to Odoni and Gunter’s. It is also highly likely that many will face prosecution in the future. And then they will realise that while it is not necessarily them making the Odoni and Gunter-sized newspaper headlines, they will still need the right defence team to disassociate them from the dishonesty that was around them.