London police chose not to investigate JC Flowers & Co.’s former chief executive after regulators fined him for faking invoices to take money from a company the private equity firm invested in.
City of London Police didn’t open a formal probe after JC Flowers declined to assist an informal inquiry and told them there was no actual victim in light of its reimbursement of the company’s losses, according to two people familiar with the matter who asked not to be identified because they weren’t authorized to speak.
The U.K. finance regulator yesterday fined Ravi Shankar Sinha, JC Flowers’s former U.K. chief executive officer, 2.87 million pounds ($4.5 million) and banned him from working in finance in the country. Sinha defrauded a company in which New York-based JC Flowers invested of 1.37 million pounds by submitting falsified invoices, lying to the company CEO and saying the firm had authorized him to charge advisory fees, the FSA said.
“The public will have difficulty understanding why it is a checkout girl who steals 10,000 pounds from her employer who should go to prison but a phenomenally wealthy individual who steals millions should not,” said Sara George, a regulatory lawyer at the London-based law firm Stephenson Harwood.
JC Flowers told the police that, given their reimbursement of the unidentified company’s losses, there was no victim that had suffered and there was no reason to prosecute when the Financial Services Authority was handling the matter, the people said. The private equity firm had reported the incident to the FSA and cooperated with the civil investigation, the regulator said.
“Had the police chosen to launch a criminal investigation, then JC Flowers would have cooperated fully, and indeed would today cooperate with any investigation should the police decide to mount an inquiry,” Michael Harrison, an outside spokesman for the firm at Brunswick Group, said in a telephone interview.
No Formal Probe
The City of London Police said in a statement that it received details of the case from the FSA and, after discussions with the affected company, decided not to prosecute Sinha. Because the police never opened a formal probe, JC Flowers didn’t obstruct an investigation, the people said.
FSA spokesman Joseph Eyre declined to comment.
Sinha committed the fraud because of his deteriorating finances, the FSA said. Between May and July 2008, Sinha borrowed around 9 million euros ($11.9 million) to invest in companies in which JC Flowers funds had invested. The funds’ performance declined, and he was left unable to pay his debt, the regulator said.
‘Very Much Regret’
The FSA “has made it clear that it makes no criticism of JC Flowers’ systems and controls,” the firm said in a statement. The firm fired Sinha in 2009 after it discovered the fake invoices.
“I very much regret misleading JC Flowers over this issue and continue to offer my sincerest apologies,” Sinha said in an e-mail. “While I disagree with some of the FSA’s findings and actions and believe they are unjust, rather than continue a prolonged debate, I believe that it is better to acknowledge my mistakes and move on to try and rebuild my career and my family’s life in the best way I can.”
JC Flowers, founded in 1998 by J. Christopher Flowers, 54, focuses on companies in the financial-services industry and has invested more than $5 billion in Europe. The U.K. division is an investment adviser to the U.S. firm, which in turn advises its private-equity funds, according to the regulator.