A former hedge-fund manager sued Royal Bank of Scotland Group Plc (RBS)’s NatWest unit claiming the bank ignored evidence its accounts were used to conduct what may be one of Britain’s biggest Ponzi schemes, in which he lost about 19.3 million pounds ($30 million).
He and the firm he founded, Jeremy D. Stone Consultants Ltd., sued NatWest and one of its managers, Paul Aplin, for negligence, dishonest assistance, deceit and conspiracy, seeking about 24 million pounds. The complaint was filed in London in April and made available by the court last week.
The alleged fraud was carried out by Jolan Saunders, 36, and Michael Strubel, 50, through companies that said they sold electrical equipment to hotels, according to court papers filed by Stone, a former portfolio manager at London-based Marble Bar Asset Management LLP. Saunders and Strubel, who were previously sued by Stone, aren’t named as defendants in the claim.
The U.K. Serious Fraud Office said in an e-mail it was investigating a suspected Ponzi scheme and made five arrests in 2010. No one has been charged and the agency refused to say who had been arrested. Kautilya Nandan Pruthi, who was jailed in March, ran the largest U.K. Ponzi scheme to date that defrauded investors of more than 115 million pounds.
Accounts tied to Saunders’s and Strubel’s firms took in as much as 300 million pounds, according to a transcript of a 2010 phone conversation involving Aplin that was included in Stone’s lawsuit. Saunders used money from investors in the companies to pay back loans and interest to other investors, the “definition of a Ponzi scheme,” according to Stone’s claim. The companies, including Essex-based Saunders Electrical Wholesalers Ltd. and Zac Fashions Ltd., had little or no actual revenue.
“These claims have been thoroughly investigated and we believe they have no merit,” RBS spokesman David Gaffney said in an e-mail. “The bank will defend itself vigorously.”
Aplin declined to comment via Gaffney.
Strubel wasn’t aware the investments he was making were part of a Ponzi scheme, his lawyer Bob Scott said in a phone interview. He said Strubel was “as much a victim as anyone else,” losing about 3 million pounds of his own money.
Saunders’s lawyer Adrian Ring said his client was assisting the SFO and declined to comment further.
Investors may have lost a total of 40 million pounds, according to a person familiar with the SFO probe who declined to be identified because the person wasn’t authorized to speak.
Aplin and NatWest agreed to “turn a blind eye” to large cash withdrawals and lack of deposits into the accounts, Stone said in legal filings. While there were “clear warning signs for a reasonably competent banker, NatWest took no substantive or effective action to investigate or prevent the use of its accounts.”
In defense papers filed at court last month, the bank said the fraud wasn’t proven. A trial on Stone’s claim against the bank is scheduled in London for later this year.
Bernard Madoff is serving a 150-year jail term after he pleaded guilty in 2009 to orchestrating what U.S. prosecutors called the biggest Ponzi scheme in history. The bankruptcy trustee of his firm has sued banks including JPMorgan Chase & Co. and HSBC Holdings Plc for ignoring fraud warning signs.
In the 12 months ending in May 2010, about 88 million pounds flowed in and out of the Saunders Electrical Wholesalers account at NatWest, Stone claimed in an amended complaint. Saunders and others withdrew as much as 100,000 pounds a week from a NatWest branch in Barkingside Essex, while several million pounds worth of checks written from the accounts bounced, according to the court documents.
Aplin, a relationship manager at NatWest, communicated with Saunders and Strubel 769 times by phone or text message during the period, Stone’s lawyers said in court papers.
Dan Morrison, a lawyer at Grosvenor Law LLP representing Stone, said NatWest had internal reports on suspicious activity in the accounts between 2006 and 2010 and didn’t act on them. By 2009 and 2010, “the bank was actively assisting the architects of the Ponzi scheme to hide the fraud,” he said in an e-mail.
In separate lawsuits filed in 2010, Saunders, Strubel and their companies and family members were sued by Stone and two other investors who claimed they lost money in a fraud. The investors won default judgments and freezing orders against Saunders’s assets, Morrison said. The judgments couldn’t immediately be confirmed with the court.
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