July 31 (Bloomberg) -- The U.K. Serious Fraud Office misled a judge when it obtained search warrants for the offices of property tycoons Vincent and Robert Tchenguiz, a London court said in a ruling criticizing the white-collar crime prosecutor.
The brothers had asked for the judge-led review of the SFO’s conduct during its probe into loans made before the collapse of Iceland’s Kaupthing Bank Hf. The SFO admitted making errors in applying for arrest and search warrants.
“The investigation and prosecution of serious fraud in the financial markets requires proper resources, both human and financial,” Judges John Thomas and Stephen Silber said in a decision this morning. “It is quite clear that the SFO did not have such resources in the present case.”
The SFO, which said yesterday that it would proceed with a probe into manipulation of the London interbank offered rate, has been criticized by politicians over its handling of probes and failure to bring cases in others. The Tchenguizes are seeking about 100 million pounds ($157 million) in damages, nearly three times the SFO’s annual budget.
The brothers’ claim for damages will be decided in a separate court, the judges said. They rejected Robert Tchenguiz’s challenge to his arrest, saying police were entitled to act on the information given to them by the SFO.
“Today’s judgment is a damning indictment of the investigation conducted under the SFO’s previous director,” Robert Tchenguiz said in a statement. He said he will pursue damages for both the searches and arrests.
The fraud prosecutor reiterated in a statement that there were problems with the investigation.
“The SFO had conceded that serious mistakes were made in connection with the application,” the agency said in a statement. The SFO has re-organized and made senior hires to avoid repeating errors. It said it would continue its Kaupthing probe with “renewed focus and vigor.”
The evidence presented by the SFO to the judge granting the search warrants was “both unfair and unjustified,” Silber and Thomas said in their ruling. If the initial judge had been given all the facts, he wouldn’t have approved the raid.
Much of the evidence of possible wrongdoing was provided by accountants Grant Thornton UK LLP, which as administrator to Kaupthing was involved in civil lawsuits connected to the probe. The judge should have been told the accounting firm had an interest, Silber and Thomas said.
The SFO’s probe focused on what it said were suspicious loans made to the Tchenguiz brothers by Kaupthing before it collapsed at the height of the financial crisis in 2008. The fraud investigator’s new director David Green dropped its investigation into Vincent Tchenguiz in June, saying it no longer considered him a suspect.
Grant Thornton spokeswoman Wendy Watherston declined to comment.
Vincent Tchenguiz, the chairman of Consensus Business Group, said the “judicial review will result in far-reaching changes in the law which will prevent others from suffering a similar injustice in future.”
He said he will seek damages which “reflect the substantial personal and business costs and losses that have directly resulted from the actions of these parties.”
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