Stuart Pearson, former chief executive of AIM-listed investment services company Crown Corporation Limited (later named Langbar International), has today been found guilty of three counts of making misleading statements by falsely claiming that the company had assets held by Banco do Brasil and also that some assets were being transferred to the company. These claims, made through official London stock market announcements in 2005 and personally to investors, were designed to paint the company as an attractive investment and boost its share price.
He was sentenced to 12 months imprisonment and disqualified from acting as a director of a company for five years. A confiscation hearing has been adjourned until 1 August.
Commenting on the verdict, SFO Director Richard Alderman said: "This was fraud on a grand scale with scant regard for the essential integrity of the financial markets or for the inevitable losses and misery caused to the investors. Our investigators have worked closely with the City of London Police and the Spanish authorities in what has been a painstaking investigation. I am very pleased that our hard work has brought an offender to justice".
Company background
Crown Corporation Ltd ("CCL") was incorporated in Bermuda in June 2003. The principal company director was executive chairman Dr Mariusz Rybak. He and other directors had substantial shareholdings in the company. CCL was described as a business that bought underperforming companies, turning them around and selling them at a profit. Shortly after incorporation Mr Rybak engaged Nabarro Wells & Co Ltd to act as its nominated advisor ("Nomad") to gain an Alternative Investment Market ("AIM") listing with the London Stock Exchange. The Nomad was told by Mr Rybak that a Swiss investment bank, Banque SCS Alliance, was to be its subscriber (a requirement for listing) taking 207 million Euros worth of shares. However, at the last moment CCL changed the subscriber which would instead be Lambert Financial Investments of Delaware, USA, which supposedly managed the money of wealthy investors. Despite initial misgivings about the late switch, the Nomad proceeded with the application to list and CCL was admitted to AIM in October 2003.
But Lambert Financial Investments did not pay the money it owed for CCL shares. Instead it provided CCL with a document (an "international certificate of deposit") dated December 2003 purporting to be issued by Banco do Brasil stating that US$275m had been deposited in the name of CCL and that a further US$295m would be payable to CCL a year later. The certificate, when it was received at Banque SCS Alliance, raised doubts at the bank. Their investigation concluded that it was not genuine and it notified CCL to this effect. Other investors, including Mr Rybak, also breached their subscription agreements by failing to pay for the shares they had been given.
In summary, Lambert Financial Investments had over 41 million CCL shares at 5 Euros each, it had issued a certificate of deposit which was false and worthless and the principal directors of CCL had been informed that it was worthless. CCL had no money and its shares no real value.
Despite this, CCL continued to make public statements to the market about its value based on the bogus certificate.
Throughout this period however trading in CCL shares was not very active, with the price remaining fairly static, that is until the summer of 2005.
Stuart Pearson
Geoffrey Stuart Pearson (d.o.b. 17.08.1947) is a chartered accountant with a career in corporate finance, mergers and acquisitions. He had previously been a partner with Baker Tilley but in 2004 set up his own corporate finance and advisory company Langbar Capital. His background meant that he would have been fully cognisant with the strict requirements and standards demanded of companies publishing information to the market.
He officially joined CCL in June 2005 when he was appointed chief executive officer (though he had previous dealings with some of the CCL board and its advisers). He also had shares in the company. CCL took over Langbar Capital and renamed itself Langbar International. Over the following three months Pearson was responsible for making a number of official announcements through the London Stock Exchange's regulatory news service about CCL's cash assets.
In September 2005 Pearson issued two RNS announcements which he knew to be misleading, false or deceptive or was reckless in issuing them. He claimed that CCL had an asset value of nearly £357 million, that it had successfully negotiated the exit of its cash deposits in South America, that US$294m had been transferred to a Langbar account at ABN Amro BV in Holland and that this sum had been admitted to the Euroclear and DTCC trading and settlement custody services. He also informed the market that the balance of the cash in Brazil was to be transferred to a newly formed subsidiary company (European Property Investment Company) and that CCL was carrying out due diligence on major property investments in Spain and Portugal
Pearson is also guilty of misleading a hedge fund manager at a meeting in October 2005 where he claimed that he had received phone and fax confirmation from ABN Amro that the funds had been received from Brazil.
Victims
We can not say how many victims were affected but they range from institutional investors to private investors who lost amounts in the millions of pounds.
Investigation/proceedings
Trading in CCL shares was suspended in October 2005 at the company's request and in November that year the company announced that it could not establish the existence of, or its entitlement to, the previously claimed bank deposits. The City of London Police Economic Crime Unit undertook an initial assessment of the circumstances and a joint investigation with the SFO followed a month later. In early 2009 a number of properties in Spain (Madrid, Barcelona and Alicante) were searched, involving support from the Cuerpo National de Policia. Six men (five Spanish and one Argentine) were arrested on a European warrant and interviewed (in Spain) and released without charge. Pearson was arrested and interviewed in April 2009 and charged in April 2010. The trial at Southwark Crown Court opened on 9 May 2011 with HHJ Goymer presiding. The jury retired on 13 June to consider the verdicts.
The indictment contained 13 counts of "Making a misleading statement, contrary to s.397 of the Financial Services and Markets Act 2000" between the dates 16 June and 4 October 2005. Pearson was found guilty on three counts and acquitted on the remaining counts. He was sentenced to 12 months' imprisonment on each of the three counts (to run concurrently) and disqualified from being a company director for five years
Notes for editors:
Update 19/09/2011
The SFO has determined that confiscation cannot be sought in this matter. At a hearing at Southwark Crown Court on 1st August, HHJ Goymer agreed with this course, declining to institute them himself and stated there was, rightly, to be no confiscation. His Honour made the following observations
He had sentenced Mr Pearson on the basis of recklessness and also having made no profit (indeed having lost money
Mr Pearson had been acquitted of the dishonesty offences
The Serious Fraud Office is a government department responsible for investigating and prosecuting serious and complex fraud. The SFO is headed by the Director (Richard Alderman) who exercises powers under the superintendence of the Attorney General. These powers are derived from the Criminal Justice Act (1987).
