Ex-Burns Anderson adviser Grahame Whitehead was jailed for 10 years last week after pleading guilty to a £12m pyramid fraud.
Sentencing Whitehead at Chelmsford Crown Court last week, judge Christopher Ball, QC, said Whitehead’s actions damaged the reputation of the industry.
He said that despite a number of warning shots being fired in Whitehead’s direction, he had “pressed on” with his £12m pyramid fraud scheme.
Judge Ball said: “If our system is to work properly, with financial advisers, what a terrible name you have given them.”
During the five-year scam, Whitehead committed 49 counts of fraud and obtaining money by deception totalling £12m, leaving a £7.2m outstanding loss to 46 investors.
Between 2004 and his arrest in April 2009, Whitehead duped victims into investing in two fake schemes. In one scheme, clients thought their money was being invested in high-interest-bearing loans and bonds with Credit Suisse while in the other scheme, clients believed they were investing in short-term bridging loans for the Salvation Army to buy property in the UK.
The money was, in fact, being paid into Whitehead’s own bank account or the bank account of a family member, which was in turn being used for his own interest, including property purchases in South Africa and Essex.
Whitehead claimed that the Salvation Army had asked his company to manage a property investment scheme on behalf of the organisation. However, the Reliance Bank, owned by the Salvation Army, controls all property purchases.
Whitehead claimed that inv-estors in the scheme would see returns of around 12 per cent for a seven to eight-week short-term loan. He said the attractive ret-urns were a result of the Salvation Army acquiring property at up to 40 per cent below market value.
In the Credit Suisse scam, Whitehead claimed to be investing client money in accounts and bonds with the bank, promising high rates of return and no risk. However, he was using the bank’s name and logo to create fake monthly statements and other communications while siphoning off client money.
In total, investors put £11.95m into what the prosecution described as a “pyramid fraud” scheme and Whitehead paid out £4.7m in interest to investors to maintain the charade. The smallest loss suffered by an investor was £7,000 and the largest loss was £2.5m on a £5m investment.
Judge Ball said: “You were greatly trusted by all these investors and you persuaded them to mistakenly invest their life savings on your hearsay. They were investors misled by your bare-faced lies. What was the purpose of your deception? Your purpose was to secure for yourself a lavish lifestyle.
“Victims included a large number of elderly, retired and ill. This was a breach of trust on an absolutely massive scale.”
Judge Ball said that despite Credit Suisse managing director of legal and compliance Judith Reid contacting Whitehead in 2008 to demand that he stop using the Credit Suisse name, he continued using the brand. The investment bank had sent the letter after it noticed that Whitehead had set up a fake Credit Suisse email address.
Judge Ball said: “There were a number of warning shots. There were a number of occasions when the whole thing should have stopped but you carried on regardless. You could not be stopped.”
Whitehead operated his pyramid scheme through two companies, Woodbridge Financial Services Limited and Woodbridge FS, both appointed representatives of Burns-Anderson. The first company went into liquidation in 2007 and Whitehead then launched the second firm.
From March 2008 up to his arrest in 2009, £17m was paid into Woodbridge FS and £15m was paid out. Whitehead paid some money into a South Afri-can firm he had set up called Willows Property Solutions. He had also formed Grosvenor International Property Services, another South African company which he said specialised in buying, developing and selling property around the world.
While operating the two schemes, Whitehead was flying around the world spending his clients’ money.
During one trip to South Africa, he formed a relationship with a local woman, named in court as Miss Berger, who he paid a £5,000 monthly allowance. She later left her husband and joined Whitehead in his new £865,000 detached house in Essex.
However, shortly after Miss Berger’s arrival in the UK, Whitehead’s scams were uncovered.
In March 2009, the Salvation Army’s solicitors Slaughter and May wrote a cease and desist letter to the fraudster demanding that he stop using the Salvation Army name.
This in turn raised the suspicions of Miss Berger. Whitehead’s personal assistant also became suspicious and confronted Whitehead on April 17, 2009.
According to prosecutor Anthony Abell, Whitehead told his PA that the investment sch-emes were a “lie” and that he would need £2m-£3m to “put it right”. He then asked his PA to erase his emails, which she ref-used to do, and on April 23, Essex Police arrived at Whitehead’s property to arrest him.
He has remained in custody since the day of his arrest but, despite confessing to his PA, he refused to co-operate with police, refusing to comment until he finally pleaded guilty last week at Chelmsford Crown Court.
Investors will have to wait until confiscation proceedings in October to find out what compensation they are likely to get.
The 46 victims of the fraud included many elderly, retired and ill individuals.
Two of the victims of the scam suffer from multiple sclerosis and a number have ended up on anti-depressants. Others have been left unable to pay for weddings, residential care or university fees.
Prosecutor Anthony Abell said: “A large number of vulnerable individuals were deliberately targeted. The effects of this fraud have been devastating on them.”
Couple lost £138k in property scam
Helen Palmer lost £138,000 on a £252,000 investment in Grahame Whitehead’s pyramid fraud.
Palmer worked as an administrator and Whitehead had set up a group pension plan for her company. In 2005, she turned to Whitehead for some additional financial advice.
He advised Palmer and her husband to cash in their safe investments and reinvest them with Woodbridge Financial Services Ltd. They invested £60,000 into his account in three tranches.
In March 2005, Palmer invested in a current account facility offering a 9.25 per cent rate of return to help fund a property development project. Whitehead said Palmer would get a 40 per cent total return at the end of the project.
She invested half her money in the property development project and half in an instant access account in Credit Suisse. Whitehead assured Palmer that there were no risks involved.
In early 2008, the couple decided to move house and Whitehead emailed them to advise them to switch to an interest-only mortgage and invest the funds they received on the mortgage in Credit Suisse again. They once again followed his advice.
Whitehead forged documents to speed up the mortgage application process. A total of £192,050 was then transferred to Whitehead.
The couple got some payments back to cover the interest repayments on the mortgage, which they believed came from their Credit Suisse investment. However, no Credit Suisse account had ever been opened.
Prosecutor Anthony Abell said: “The effect has been devastating. They had entrusted £252,000 and they lost £138,000. They have no capital left and their salaries are insufficient to cover the interest payments on the mortgage. The anxiety they suffered has affected their health.”
£2.6M cost of bridging loan con
The biggest loser in Grahame Whitehead’s pyramid scam was 68-year-old company director John Erser.
Through a mutual associate, Erser heard about the scheme that Whitehead had claimed involved the Salvation Army. Whitehead delivered a plausible explanation of how the investment scheme worked.
Erser first invested £220,000 in November 2008 to get a 7.5 per cent return on a four-week bridging loan that he was told related to two properties in East London. In January 2009, he was repaid his capital sum plus a £17,500 interest payment.
By this time, Erser had already decided he wanted to make further investments in the scheme and by early 2009 he had invested £650,000. He recommended that his wife also invest in the scheme and in January 2009 she invested £2m.
Whitehead then advised the couple to roll over their investment and reinvest. However, the couple wanted to see their money in their account first so in March 2009 the money was repaid and they immediately moved £2.1m and a further £400,000 to a Woodbridge bank account, believing that it would be reinvested in two further bridging schemes.
The schemes were due to mature in May 2009 but neither capital investment was ever paid. The couple suffered a total loss of £2,597,000.
During the investment process, Whitehead gave the couple fake references for Salvation Army members, produced headed letters bearing the logo and forged letters from solicitors.
Erser said: “The fraud has fundamentally changed how I view my working future. It will continue to affect my quality of life for years to come.”