Ex-RBS Traders Cleared of Tax Fraud as Jefferies Trio Jailed

  • Jurors find three former RBS traders not guilty of tax fraud
  • Ex-Jefferies traders convicted earlier in similar movie scheme

Three former traders at Royal Bank of Scotland Group Plc were found not guilty of cheating on their taxes using a film investment scheme, a few months after a trio of former Jefferies Group LLC bankers was convicted over a similar movie project.

Legal restrictions prevented the earlier verdicts from being reported until now.

Jason Edinburgh, left, Assad Amin, center, and Vincent Walsh

Photographer: Simon Dawson/Bloomberg

Former RBS equities traders Jason Edinburgh and Vincent Walsh were found not guilty of tax fraud by a London jury Thursday. Another former employee, Assad Amin, was acquitted a day earlier.

Hamish Maclellan, former head of international equity sales at Jefferies, and ex-traders James Hyde and Phillip "Joe" Jenkins were sentenced to four-and-a-half years in jail in September after a trial in front of a separate jury.

The six men were accused of investing about 900,000 pounds ($1.36 million) in two separate projects and seeking unwarranted tax benefits worth twice that amount.

Mercedes, Starsuckers

The RBS defendants invested in a film called "Mercedes", a romantic thriller about motor racing on the French Riviera that was never made, while the Jefferies traders put their money in "Starsuckers," a documentary about the corrupting influence of celebrity. The six were accused of submitting faked time sheets to U.K. tax authorities to show they were "active partners" in the projects -- spending at least 10 hours a week working on the films to qualify for tax reductions.

The cases are fallout from an investing boom that swept through the U.K. after then-Chancellor of the Exchequer Gordon Brown unveiled expanded film credits in his 1997 budget. Intended to boost a creative industry that had produced popular movies including "Four Weddings and a Funeral" and "The Full Monty," the loophole was widely abused, leading to a government crackdown and dozens of lawsuits.

“It was probably the most widely exploited tax credit in British history,” said Martin Taylor, an executive at Rebus Investment Solutions, which represents people who were sold unsuitable investments.

The RBS traders told jurors that Terence Potter, a former tax partner at Ernst & Young LLP-turned-film-producer who created the scheme, sent them the calendar records, which they forwarded on to HMRC, the tax authority. They denied conspiring to mislead tax collectors, saying they’d often been too busy to check what was being sent on their behalf and hadn’t noticed the inaccuracies. The Jefferies traders said they were unaware of the "active partner" status and requirements.

Professional Men

"This is a case against professional men in the City, investment bankers who made a decision to dishonestly evade tax and so cheat the U.K. taxpayer out of money," said Shane Collery, the lead prosecutor on both cases, at the start of the Jefferies trial.

When the jurors returned a not-guilty verdict, there were cheers from the RBS traders’ friends and family in the public gallery. Edinburgh said “thank you” to the jury.

This was the second trial for the RBS bankers after a jury in July was unable to reach a decision on the charges. All three men declined to comment after the verdicts were announced. Michael Elsom, a former broker at Marex Spectron Group Ltd. and another investor in the "Mercedes" scheme, was also acquitted Wednesday.

Relief on Loans

In their heyday, the film investment schemes were touted around London to thousands of high earners in finance, sports and entertainment. Typically, investors borrowed money and claimed relief on the loans as well as their own investments. Some applied for credit in two different ways on the same film -- so-called double dipping. Others bought the rights to completed films and immediately leased them out to distributors, getting tax benefits without any real benefit to filmmakers.

The U.K. government, seeing that the credit was being used to lower tax bills instead of boost the industry, tightened the rules in 2007. One of the changes was to limit the amount of tax relief available unless investors were "active partners" and actually spent time working on movie partnerships.

“It’s not British film’s failure so much as it is a legislative failure,” said Damon Parker, a London lawyer who has represented investors in film-investment projects that unraveled. “We create what look like loopholes and then the sharks move in.”

The ex-Jefferies traders put about 300,000 pounds into a partnership to fund Starsuckers, which was produced by Potter. The traders never showed any interest in the film, Judge Martin Beddoe said when he sentenced them.

“This whole scheme was all about dishonestly getting back some of the tax you had paid, and the expectation that you would double your money in the process,” the judge said. “That was all there was to it: greed.”

Potter, who was convicted in the Jefferies case and pleaded guilty in the RBS case, and Neil Williams-Denton, a financial adviser who was convicted in the Jefferies and RBS trials, will be sentenced by Judge Beddoe next week.

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