British Ponzi Victim Payouts Lost on Fish, Ferraris
Police searched Kevin Foster’s home in 2004, looking for signs of a criminal lifestyle -- fast cars or piles of cash. What they found, at the end of a narrow country lane in rural England, was a private zoo complete with miniature railway.
“There were wallabies, llamas, goats, sheep, and very expensive Koi carp,” according to Nedim Ailyan, the bankruptcy trustee appointed to sell off Foster’s assets.
Foster was convicted and jailed in 2010 for running a 34 million-pound ($55 million) Ponzi scheme, using money from new investors to pay off old ones. Two years later his victims, who haven’t been paid back, are left wondering where the money went.
Fraud and financial crime will cost the U.K. economy about 73 billion pounds this year, according to government estimates. Prosecutors trying to recover illicit gains and anything bought with them face a process often more difficult than convicting the culprits. Anything lawyers, regulators and investigators recover, after fees, goes back to victims or the government. But Ponzi schemers and inside traders hide money overseas, buy hard- to-trace assets or, like Foster, spend it living in luxury.
“For criminal authorities, it is very often impossible” to recover illegal profits, said Shaul Brazil, a London-based defense lawyer who represents white-collar criminals. “It’s a natural consequence of the actions of people who are determined to put their assets out of reach.”
One way to seize ill-gotten gains is for courts to issue confiscation or compensation orders, which force offenders to sell assets to repay victims. If they refuse, the court can appoint a receiver to do it and order more prison time.
Christian Littlewood and his wife Angie were handed a 1.6 million-pound confiscation order by a London judge last month, after being convicted of insider trading following a U.K. Financial Services Authority investigation. Littlewood, a former Dresdner Kleinwort banker who passed confidential information to his wife, must come up with the money within six months or face a doubling of his three-year jail sentence.
Rick Shearman, Littlewood’s lawyer, declined to comment.
The Serious Fraud Office won about 40 million pounds in confiscation orders between April 2008 and April of this year, according to its records. It recovered about 11.2 million pounds, or 28 percent of what judges ask for, from those orders. The FSA, which fared better in part because it brings fewer cases with smaller sums involved, got back about 99 percent of the 1.8 million pounds of confiscation orders made in its cases between 2009 and 2011, according to its figures.
Dick Gould, head of the SFO’s proceeds of crime unit, has made it his life’s work to take money from lawbreakers.
“I love the work,” he said, in an interview at the agency’s London offices. “Rich villain becomes poor villain. It doesn’t get any better than that.”
The SFO doesn’t often seize cars or homes, Gould said, because confiscation orders leave it to offenders to repay victims. His unit steps in when they don’t cooperate.
The job is especially tough when money is stashed in offshore companies or banks. Prosecutors must find the assets, then persuade local authorities they are illegal. And under international law, a foreign government can keep what it finds and doesn’t have to return cash to the U.K., Gould said.
“You can do in an hour what might take me three or four years to catch up with,” Gould said. Still, his team of seven lawyers and 10 investigators have had successes.
In January, the SFO returned about 1.1 million pounds to victims of Philip Bates, who conned insurers into paying commissions on fake policies. Bates, jailed in 2008, had moved about 1.5 million pounds to Monaco, Gould said. The SFO convinced Monaco to freeze and confiscate the funds and send most of it to the U.K.
Harry Travers, a lawyer who represented Bates, and his wife’s lawyer Judith Seddon both said they no longer acted for the couple and didn’t know how to contact them.
Other cases aren’t as straightforward. Because the U.K. doesn’t recognize Northern Cyprus as a country, there are no legal means to trace or seize assets there, Gould said. For that reason, it’s a destination for fugitives including Polly Peck International Plc founder Asil Nadir, jailed last month for stealing about 29 million pounds from the company.
Prosecutors plan ask the court for a compensation order against Nadir, Gould said.
The SFO’s interest in Kevin Foster and his zoo ended when he went to prison in 2010 for his sports-betting fraud. It didn’t end for his victims or Ailyan, the bankruptcy trustee tasked with turning Foster’s possessions into cash.
Foster wanted to be “considered truly rich and unique,” Ailyan said during an interview at his office near London. “He loved the limelight.”
While a barn full of collectible toys that Foster paid about a million pounds for turned out only to be worth about 10,000 pounds at auction, Ailyan and his lawyers have found about 1.2 million pounds in various bank accounts.
Foster also had a Ferrari that he sold during the investigation to cover living expenses. The property adjoining the zoo was sold to his wife for 500,000 pounds. The total recovery didn’t even cover Ailyan’s fees, leaving him about a million pounds out-of-pocket, and nothing for victims.
Stephen Gilchrist, a lawyer who represented Foster, wasn’t able to contact him or his wife. Gilchrist said Foster’s theft charge was thrown out, leaving convictions for running an unauthorized investment plan and material concealment of facts.
“My understanding is that the vast bulk of incoming funds were either paid back” to investors or lost when Foster himself invested in a Ponzi scheme, Gilchrist said.
Ailyan confirmed Foster lost millions when he fell victim to other fraudsters. As for the animals, they were too costly and difficult for the trustee to maintain, so he sold them to Foster’s wife for a nominal fee.
The house was later repossessed and Foster’s wife moved out in 2011, according to estate agent Philip Jarvis, who sold the property earlier this year.
When he last visited there was no trace of a zoo, he said in a phone interview. “The animals have long gone.”
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