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£12M pyramid fraud went on for five years

Tracey Scott reports from court on the £12m fraud trial of ex-Burns Anderson adviser Grahame Whitehead.

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.”

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Comments

There are 9 comments at the moment, we would love to hear your opinion too.

  1. This is more astonishing as more details come to light.

    Sadly in all likelihood the stolen funds will be untraceable and the confiscation proceedings can only award whatever money can be found by the Asset Recovery Agency.

    He will also probably use legal techniques to delay the October hearing for many years.

    As a consequence the victims are unlikely to see any money back in the near future from the criminal prosecution.

    However, this is ignoring the obvious. All this was done whilst being supervised by Burns Anderson, who clearly failed to supervise properly else he wouldnt have been able to get away with it for so long.

    So Burns Anderson should be liable and have to reimburse the victims (thats what PI insurance is for).

    If they dont then the whole regulatory system governing IFAs is worthless as the point of being an Appointed Representative is that they Principal firm carries all liability and responsibilty. If the victims have to resort to legal action through normal civil courts to enforce this, then what is the point of regulation?

  2. Grahame Whitehead is a complete disgace and tosser and should rot in jail.

  3. While it is correct that an IFA Network such as Burns Anderson should carry the responsibility for it’s Appointed Representatives, they are only required to do this for Regulated activities. From the circumstances that are described in the article it seems unlikely that Mr Whitehead was carrying out a regulated activity at the time of his deception.

    The very nature of Fraud is that, to be sucessful, it should not be discovered. Therefore, as it is likely Mr Whitehead was doing his best to keep it from Burns Anderson and they would not have been concerned with the firm’s non-regulated business in any case, it is always going to be difficult for a Network (or the FSA for that matter) to detect instances such as this.

    Assuming Mr Whiteheads activities in respect of these clients was non-regulated, to the best of my knowledge, Burns Anderson would not have been breaking any FSA rules, nor would FOS have looked at the case had it been brought to them by one of his clients.

    While none of this addresses the moral issues involved and it is unfortunate that it is usually the most vulnerable members of society who are more often than not targeted by advisors such as Mr Whitehead, the fact is that the majority of clients, despite over 20 years of regulation, are still not aware that there are some investments they make that are Regulated and some that are not.

    I am unsure what the answer to this is other than for the FSA to Regulate all activities undertaken by IFAs (although I am in no way advocating this as a course of action), but at least then Burns Anderson would have had to have looked at all Mr Whitehead’s activities and therefore would have been more likely to have picked something up. However, given the current situation I feel it is a bit harsh to be blaming Burns Anderson in this case…….and before I get a comment that I obviously work for them, I don’t!

  4. I agree in principle with the post above in that it appears that the crimes were committed via unregulated structures.

    However (without knowing the full details of the case – I am not connected in any way) you have to look at it from the point of view of the victims.

    1 If Mr Whitehead held himself out to be agent of Burns Anderson – ie used headed stationary clearly stating this, or stated to his clients that Burns Anderson was his Principal – and therefore conducted his business in the name of Burns Anderson.

    2. If Mr Whitehead did not communicate clearly to the victims that these investments were unregulated

    3. If Burns Anderson had ample opportunity to detect (or even worse, had knowledge of) Mr Whiteheads actions and failed to take action.

    then it is clearly a case that Burns Anderson failed to supervise Mr Whitehead. It is this failure (and breaches of numerous FSA regs) to supervise that means they are liable.

    Else the whole Principal/Appointed Representative structure would collapse because all a Principal would have to do would be to deny all knowledge of anything their ARs do.

    As the above post states “the majority of clients are still not aware that there are some investments they make that are Regulated and some that are not.”

    This lack of knowledge is entirely the fault of the AR and as a consequence the Principal as they have failed to ensure fair communication with the customer. This, in a regulated industry, can NEVER be the fault of the customer because it is beholden on the AR and Principal to inform them.

  5. Robert Donaldson 26th April 2010 at 9:55 am

    You would have thought that both Credit Suiss and the Salvation Army would have done more than simply send a letter. Surely no smoke without fire would have been the watchword. After all from the info above they were investing in Woodbridge Financial Services.

    A quick nod of the head to the FSA over this matter and it could have been picked up quicker.

  6. I don’t believe anyone is claiming that Mr Whiteheads clients are at fault in this case. However, when an AR is involved in fraudulet activity they tend to target existing clients, often those they have a relatively long-standing relationship and trusted relationship with.

    As a result the client will normally have put a number of Regulated transactions through the firm before they are approached in connection with the non-regulated activity. Under these circumstances most do not realise there is any difference (even if the latest communictions with the AR are not on officially headed paper), treating it as just another investment. The difference is that the non-regulated activity will not show up on any audits carried out by whoever is responsible for the firm, whether it be a Network or the FSA.

    To suggest the AR is at fault because he failed to effectively communicate the difference between a Regulated and non-Regulated investment to his clients, given that his intention was to defraud them, is more than a little naive.

  7. The AR can be considered to be at fault because he is a convicted fraudster and so whether he did or did not communicate the exact nature of the ‘investments’ is irrelevent to his liability.

    The issue is that when agreeing to act as Principal to an Appointed Representive, a network doesnt just get a nice revenue stream. It takes on certain responsibilities, one of which is to ensure that their ARs act within the law and the FSA rulebook.

    If they dont then the Principal is liable, particularly where client protection is concerned. Even if the AR is extremely clever and hiding their activities in order to defraud – ignorance is no defence.

    Should the Principal have known about the frauds from their regular audits? Possibly not if the AR is smart.

    Does the Principal carry liability in a legal sense for the actions of the AR conducting ‘business’ in the name of the Principal? Absolutely.

    If this wasnt the case the Principal would be able to deny liability for anything an AR did by simply denying knowledge which would mean there would be no reason for a Principal to approve or regularly monitor any AR.

  8. An 88 year Old Ex enlisted Tank Driver then 18 years in World War II, now in care,Lost my Savings to this Stinking Swine. I Want him to serve for the FULL 10 Years in Jail.He deserves a great deal more than that.Hpoe some Prisoner gives him a Good Going over. I would if I had the Chance.

  9. Graham Whitehead 4th June 2013 at 7:19 am

    I would like to make it known that I am NOT the Graham Whitehead referred to in this sad case of fraud. I am graham Whitehead from Rochford Essex. I am the director of C.K.Developments Ltd & an ex-chairman of SAEN, a local residents group against the expansion of the local airport. While I have been abroad on business, my wife has been subjected to what can only be called repeated harassment, bordering on physical, by an elderly gentleman who, I can only assume, has been swindled out of a large sum by this other Graham Whitehead. It does not help that the fraud GW lived in Essex, but it is never quoted where in Essex, so it would seem that as I live in Rochford, Essex, I have become a target. It would help if the town he operated out is quoted.

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