Post by QPR Report on Jul 22, 2009 0:44:57 GMT
David Conn/The Guardian
Derby County fraud exposes English football's 'fit and proper' testThis is a longer version of the article that appeared in Wednesday's Guardian
There was no "fit and proper person test" for football club directors when Derby County were taken over in October 2003 for the princely price of £3. Yet, even if the current test had been in place then, it would not have barred any of the four men who were sentenced this week to substantial prison sentences for their parts in defrauding Derby of £440,625.
Jeremy Keith, who became the club's chief executive, was convicted along with Andrew Mackenzie, the finance director before and after the takeover, Murdo Mackay, a former players' agent who became Derby's director of football, and David Lowe, a Monaco-based lawyer. Steve Harding and John Sleightholme, a barrister who became Derby's chairman, were involved with Keith in the £3 takeover, but were not implicated in the fraud at all nor charged with any offence.
The jury at Northampton Crown Court had been told that immediately after the £3 takeover, Mackenzie, Mackay and Keith, had agreed that they each be paid £125,000 plus VAT from the club. That payment was not approved by the board – Sleightholme gave evidence for the prosecution saying he knew nothing about it.
Mackenzie and Mackay were both convicted of conspiracy to defraud the club, and sentenced to three years in prison. Keith was convicted of false accounting and sentenced to 18 months in prison. Lowe was convicted of money laundering and sentenced to two years in prison after he was found to have helped disguise the payments to Mackenzie.
Many fans, particularly the Derby County supporters trust, Ramstrust, were suspicious of the men they wryly nicknamed "the three amigos" from the day they arrived and Sleightholme, at his first press conference, refused to say who the actual owners were. The club had oceanic debts after being relegated from the Premier League in 2002, were put into receivership by the Co-Op Bank then rapidly sold for £3 to, according to Sleightholme, "a mixture of persons, at home and abroad, who have asked to remain anonymous".
If that was not unnerving enough, it quickly turned out that the money which the trio had brought to support their takeover was a £15m loan at 10 per cent interest a year from a company – the ABC Corporation – registered in Panama. ABC Corporation had also loaned £10m at a similar interest rate to Queens Park Rangers, another club which had been in financial trouble after relegation from the Premier League.
The source of the ABC millions has never been confirmed, but senior QPR sources believed the money came from Michael Hunt, the former managing director of Nissan UK who in 1993 was sentenced to eight years in prison for his role in the largest tax fraud ever perpetrated in the UK.
ABC Corporation's London representative, with whom both QPR and Derby dealt, was Philip Englefield, who had been appointed a QPR director. QPR soon found out he was a former solicitor struck off by the Law Society for improperly taking almost £900,000 from his firm's clients' bank account. Derby's supporters trust later discovered that Englefield had also been sentenced, in March 1993, to seven years in prison (reduced to six on appeal), having been convicted of theft and fraud offences for taking £4.7m from his firm's client account.
He had written to the Sunday Times in 1994 to praise the prison fish and chips, served on a Friday, as "the gastronomic highlight of the week." Englefield also wrote a letter to the paper in support of Hunt and was the man Keith and Derby County dealt with as the representative of the ABC loan. Asked about Hunt, Keith told Ramstrust: "We can't categorically say who is involved." But Sleightholme said they had no dealings with Hunt.
Presented with the chance of the ABC money to reduce the £27m it was owed, the Co-Op Bank put Derby into receivership, then the club was immediately sold to Keith's consortium. In his sentencing remarks, Judge Alexander said that Keith, Mackenzie and Mackay had become "controllers of the club for the sum of £3."
The manoeuvre cost the former chairman, Lionel Pickering, who had overseen Derby's 1997 move to Pride Park, £12m, and significant sums were also lost by other shareholders, mostly local Derby fans-made-good, including the property developer Peter Gadsby.
The ABC's £15m was used to reduce the Co-Op's debt by £10m, and £4.7m was paid to a finance company, Lombard. The fans, who never stopped asking questions for three years before Gadsby finally ousted Keith and regained control of the club, never knew about the secret commissions to which Mackenzie, Keith and Mackay had helped themselves. Yet they always suspected that the men were out to make money for themselves from stricken Derby.
Mackenzie had been Pickering's trusted lieutenant at Derby and at the local newspaper group which had made the latter's fortune but he worked with the new regime after Pickering had lost his money. Keith was a "company doctor" who had previously been involved at Portsmouth, and he was the introducer of the ABC loan. Mackay's business career did not inspire the supporters with confidence. He had been a director of five companies which had been struck off the Companies House register and one, Inside Soccer Recruitment, had gone bust a year earlier owing money to creditors including HM Revenue and Customs and the former England captain, Terry Butcher, who did not give Mackay a glowing character reference.
Yet even under the current "fit and proper person" rules, Mackay would have been waved through: people can have run scores of companies into insolvency; they are only barred from football directorships if they have unspent criminal convictions or have been directors in two insolvencies at football clubs. So now, following a three-year investigation by Derbyshire Police's economic crime unit, in partnership with the Fraud Prosecution Service which brought the case to court, the supporters know that the fraud took place within days of the takeover.
Mackay, Keith and Mackenzie, the insider at the club throughout, agreed that the club would pay each of them £125,000 plus VAT, without board approval. Sleightholme gave evidence for the prosecution to say he did not even know about it. The evidence which proved most damaging to them was that instead of having the money paid directly to them by Derby County they constructed a plot to disguise it.
All the money, the whole £375,000 plus VAT – £440,625 in total– was paid to Streamline Management, a company registered in Sidcup, Kent. That was a false invoice, because Streamline had done nothing at all for Derby County. Mark Waters, the director of Streamline, was also charged with fraud but he was found innocent of any wrongdoing. Judge Alexander, when sentencing Mackay, said to him: "You beguiled the unfortunate Mr Waters to become involved."
Keith, however, was convicted of false accounting because he knew the Streamline invoice was bogus. Along with his 18-month prison sentence, the judge disqualified Keith from acting as a company director for three years. "You were a party to the dishonest use of the Streamline invoice, which enabled the money to be obtained," Judge Alexander told Keith. "Being in effect the chief executive of the club and a director your actions were a serious breach of your duties and show you are clearly unfit to be a director of a company."
The share of the money for both Mackenzie and Mackay, £250,000 plus VAT, was paid from Streamline to one of Mackay's companies, Kirvick Ltd. At the end of 2003, Mackay paid £7,000 for Mackenzie and his family to have a holiday in Malaysia but after that, Mackay spent all the money. It was not until 2005 that he paid Mackenzie more of the agreed money; Mackay raised cash by selling shares in another of his companies for £81,895. Yet instead of that money being paid directly to Mackenzie, it was routed to him via Lowe in Monaco. He transferred it straight to an account in Florida, where it went towards buying Mackenzie a holiday villa in April 2005.
"As the club's financial director you had a duty to make sure the club's finances were properly looked after," Judge Alexander said when sentencing Mackenzie. "It was still in a perilous financial state and to defraud [it] of this sum was a gross breach of trust. You appear to show no remorse or acknowledgement of your dishonesty."
As well as his three-year sentence, Mackenzie was disqualified from being a director of any company for five years. The judge said he had taken into account Mackenzie's "previous good character and good works" – one of the witnesses had described Mackenzie as "Mr Derby".
Mackay, the former Fifa-registered players agent with a string of struck off companies behind him, made the remarkable plea to the jury that what he had done was: "OK in the football world." The judge said the jury "understandably rejected" that argument. "It would be wrong to treat you differently to Mackenzie even though you are the least attractive of the two of you," he told Mackay. "You did not even pay all that was due to your co-conspirator, or indeed pay the VAT element, and you put in a false VAT return. You show no remorse or acknowledgement of your dishonesty."
Mackay was also disqualified from acting as a company director for five years, along with his sentence of three years in prison. The judge was particularly critical of Lowe, who was sentenced to two years for money laundering – his offence was to launder, or "clean" the payment to Mackenzie by routing it via Florida and also issuing false documents to disguise it. Detective Sergeant Ian Penman of Derbyshire Police's economic crime unit, assisted by just one detective constable, raided and searched Lowe's office in Monaco and took away Lowe's computer, on which the police found emails pointing to the scam.
"You, better than anyone else, should know the seriousness of money laundering," Judge Alexander told Lowe when sentencing him. "You tried very hard to cover it all up once it came to light, but unfortunately for you very incriminating documents were found on the computer. I suspect you never thought the investigating officers would bother to visit Monaco and recover the material."
The judge, throughout his remarks on Monday, stressed repeatedly that fraud is a serious offence, which "eats away at the financial structure of society" and "requires a lot of work to investigate and prosecute." In his address to all of them, Keith, Mackenzie, Mackay and Lowe, he said: "Before your convictions all four of you were men of some prominence in your respective professional lives and to some extent public figures. The spectre of prominent members of society behaving in such a dishonest way on this scale, without any apparent hesitation, conscience or remorse, is very unedifying and can only be dealt with by immediate custodial sentences.
"It struck me during the trial that you, like so many people who commit business and professional crime, somehow give the impression that you do not believe the rules apply to you, and that what you do in your business life is perfectly acceptable."
Penman's painstaking investigation of the grim events at Derbyshire's other Football League club, Chesterfield between 2000 and 2001, led to the conviction of the former chairman, Darren Brown, for fraudulent trading and a four-year prison sentence. After the convictions of the Derby four, DS Penman said: "This was an extremely important investigation because Derby County Football Club is an integral part of the local community.
"We took in excess of 150 witness statements and trawled through hundreds of documents from some 70 sources in order to piece together the intricate jigsaw puzzle which, when completed, pointed to a criminal conspiracy and a cover up. Lies had been told by Keith and Mackenzie to various interested parties including the bank, administrators and the media."
David Levy, the assistant director of the Fraud Prosecution Service, paid tribute to Derbyshire Police and to his own senior prosecutor, Rajinder Bhatta, who worked on bringing the case to trial. "We deal with many fraud cases," Levy said, "where people take money because they are greedy and believe they can get away with it. This was a difficult case for the police to investigate, to unravel the fraud, and a difficult case to prepare to present to the jury clearly and coherently what these defendants had been up to. The result has come about through excellent teamwork between the police, the FPS and counsel in court."
In April 2006, with Derby struggling in the Championship and £54m in debt, Gadsby managed to secure control of the club, partly after exposing the £375,000 taken out by Keith, Mackay and Mackenzie.
Keith was still at that time trying to cling on to ownership of Derby, backed by a venture capital fund. Gadsby succeeded with a £20m takeover, cleared more debt still owing to the Co-Op and the following season Derby won promotion to the Premier League with a 1-0 win over West Bromwich Albion via the play-offs. Gadsby, though, found it difficult financially to marshal survival for the club, who were relegated the following season with the lowest points total ever in the Premier League. In October 2007 Gadsby stood down as the chairman and three months later he and his consortium sold Derby to the US consultancy GSE, who were backed by investors.
Gadsby said of the jail sentences this week: "It draws a line under an unhappy period for Derby County and the people who betrayed the club. The club was heading for disaster at that time, with debts spiralling and evidence of fraudulent practice. Without the sustained opposition of the supporters trust to Keith's regime we would not have been able to take the club over. They showed the Co-Op Bank very clearly that there was only one choice for the fans."
Jim Wheeler and Elaine Dean, board members of Ramstrust, who had been in court to see the four men sentenced, said afterwards: "We feel that the convictions and sentences vindicate our campaign which began in 2003 when the trust battled to bring the truth to light over the financial dealings at the club. Some supporters groups opposed us at the time but we hope this shows other fans that they must ask questions and think before welcoming into the boardroom 'businessmen' who have no previous association with their clubs. We hope this episode also highlights the value of supporters trusts, whose role is to be vigilant about how their clubs are run."
Since 2004, the FA, Football and Premier Leagues have introduced the rule that directors and 30% owners of clubs must be "fit and proper." That requires them to have no previous convictions and not to have been directors in two football club insolvencies. Keith, Mackay and Mackenzie would all have passed that test and been welcomed in even if it had been in force when Keith engineered his £3 takeover of Derby County, backed by the Panamanian ABC Corporation, in October 2003.
It is still, very often, up to the fans, loyal to their clubs for life, to watch what these people get up to, once inside football's golden circle.
www.guardian.co.uk/sport/david-conn-inside-sport-blog/2009/jul/22/david-conn-inside-sport-derby
Derby County fraud exposes English football's 'fit and proper' testThis is a longer version of the article that appeared in Wednesday's Guardian
There was no "fit and proper person test" for football club directors when Derby County were taken over in October 2003 for the princely price of £3. Yet, even if the current test had been in place then, it would not have barred any of the four men who were sentenced this week to substantial prison sentences for their parts in defrauding Derby of £440,625.
Jeremy Keith, who became the club's chief executive, was convicted along with Andrew Mackenzie, the finance director before and after the takeover, Murdo Mackay, a former players' agent who became Derby's director of football, and David Lowe, a Monaco-based lawyer. Steve Harding and John Sleightholme, a barrister who became Derby's chairman, were involved with Keith in the £3 takeover, but were not implicated in the fraud at all nor charged with any offence.
The jury at Northampton Crown Court had been told that immediately after the £3 takeover, Mackenzie, Mackay and Keith, had agreed that they each be paid £125,000 plus VAT from the club. That payment was not approved by the board – Sleightholme gave evidence for the prosecution saying he knew nothing about it.
Mackenzie and Mackay were both convicted of conspiracy to defraud the club, and sentenced to three years in prison. Keith was convicted of false accounting and sentenced to 18 months in prison. Lowe was convicted of money laundering and sentenced to two years in prison after he was found to have helped disguise the payments to Mackenzie.
Many fans, particularly the Derby County supporters trust, Ramstrust, were suspicious of the men they wryly nicknamed "the three amigos" from the day they arrived and Sleightholme, at his first press conference, refused to say who the actual owners were. The club had oceanic debts after being relegated from the Premier League in 2002, were put into receivership by the Co-Op Bank then rapidly sold for £3 to, according to Sleightholme, "a mixture of persons, at home and abroad, who have asked to remain anonymous".
If that was not unnerving enough, it quickly turned out that the money which the trio had brought to support their takeover was a £15m loan at 10 per cent interest a year from a company – the ABC Corporation – registered in Panama. ABC Corporation had also loaned £10m at a similar interest rate to Queens Park Rangers, another club which had been in financial trouble after relegation from the Premier League.
The source of the ABC millions has never been confirmed, but senior QPR sources believed the money came from Michael Hunt, the former managing director of Nissan UK who in 1993 was sentenced to eight years in prison for his role in the largest tax fraud ever perpetrated in the UK.
ABC Corporation's London representative, with whom both QPR and Derby dealt, was Philip Englefield, who had been appointed a QPR director. QPR soon found out he was a former solicitor struck off by the Law Society for improperly taking almost £900,000 from his firm's clients' bank account. Derby's supporters trust later discovered that Englefield had also been sentenced, in March 1993, to seven years in prison (reduced to six on appeal), having been convicted of theft and fraud offences for taking £4.7m from his firm's client account.
He had written to the Sunday Times in 1994 to praise the prison fish and chips, served on a Friday, as "the gastronomic highlight of the week." Englefield also wrote a letter to the paper in support of Hunt and was the man Keith and Derby County dealt with as the representative of the ABC loan. Asked about Hunt, Keith told Ramstrust: "We can't categorically say who is involved." But Sleightholme said they had no dealings with Hunt.
Presented with the chance of the ABC money to reduce the £27m it was owed, the Co-Op Bank put Derby into receivership, then the club was immediately sold to Keith's consortium. In his sentencing remarks, Judge Alexander said that Keith, Mackenzie and Mackay had become "controllers of the club for the sum of £3."
The manoeuvre cost the former chairman, Lionel Pickering, who had overseen Derby's 1997 move to Pride Park, £12m, and significant sums were also lost by other shareholders, mostly local Derby fans-made-good, including the property developer Peter Gadsby.
The ABC's £15m was used to reduce the Co-Op's debt by £10m, and £4.7m was paid to a finance company, Lombard. The fans, who never stopped asking questions for three years before Gadsby finally ousted Keith and regained control of the club, never knew about the secret commissions to which Mackenzie, Keith and Mackay had helped themselves. Yet they always suspected that the men were out to make money for themselves from stricken Derby.
Mackenzie had been Pickering's trusted lieutenant at Derby and at the local newspaper group which had made the latter's fortune but he worked with the new regime after Pickering had lost his money. Keith was a "company doctor" who had previously been involved at Portsmouth, and he was the introducer of the ABC loan. Mackay's business career did not inspire the supporters with confidence. He had been a director of five companies which had been struck off the Companies House register and one, Inside Soccer Recruitment, had gone bust a year earlier owing money to creditors including HM Revenue and Customs and the former England captain, Terry Butcher, who did not give Mackay a glowing character reference.
Yet even under the current "fit and proper person" rules, Mackay would have been waved through: people can have run scores of companies into insolvency; they are only barred from football directorships if they have unspent criminal convictions or have been directors in two insolvencies at football clubs. So now, following a three-year investigation by Derbyshire Police's economic crime unit, in partnership with the Fraud Prosecution Service which brought the case to court, the supporters know that the fraud took place within days of the takeover.
Mackay, Keith and Mackenzie, the insider at the club throughout, agreed that the club would pay each of them £125,000 plus VAT, without board approval. Sleightholme gave evidence for the prosecution to say he did not even know about it. The evidence which proved most damaging to them was that instead of having the money paid directly to them by Derby County they constructed a plot to disguise it.
All the money, the whole £375,000 plus VAT – £440,625 in total– was paid to Streamline Management, a company registered in Sidcup, Kent. That was a false invoice, because Streamline had done nothing at all for Derby County. Mark Waters, the director of Streamline, was also charged with fraud but he was found innocent of any wrongdoing. Judge Alexander, when sentencing Mackay, said to him: "You beguiled the unfortunate Mr Waters to become involved."
Keith, however, was convicted of false accounting because he knew the Streamline invoice was bogus. Along with his 18-month prison sentence, the judge disqualified Keith from acting as a company director for three years. "You were a party to the dishonest use of the Streamline invoice, which enabled the money to be obtained," Judge Alexander told Keith. "Being in effect the chief executive of the club and a director your actions were a serious breach of your duties and show you are clearly unfit to be a director of a company."
The share of the money for both Mackenzie and Mackay, £250,000 plus VAT, was paid from Streamline to one of Mackay's companies, Kirvick Ltd. At the end of 2003, Mackay paid £7,000 for Mackenzie and his family to have a holiday in Malaysia but after that, Mackay spent all the money. It was not until 2005 that he paid Mackenzie more of the agreed money; Mackay raised cash by selling shares in another of his companies for £81,895. Yet instead of that money being paid directly to Mackenzie, it was routed to him via Lowe in Monaco. He transferred it straight to an account in Florida, where it went towards buying Mackenzie a holiday villa in April 2005.
"As the club's financial director you had a duty to make sure the club's finances were properly looked after," Judge Alexander said when sentencing Mackenzie. "It was still in a perilous financial state and to defraud [it] of this sum was a gross breach of trust. You appear to show no remorse or acknowledgement of your dishonesty."
As well as his three-year sentence, Mackenzie was disqualified from being a director of any company for five years. The judge said he had taken into account Mackenzie's "previous good character and good works" – one of the witnesses had described Mackenzie as "Mr Derby".
Mackay, the former Fifa-registered players agent with a string of struck off companies behind him, made the remarkable plea to the jury that what he had done was: "OK in the football world." The judge said the jury "understandably rejected" that argument. "It would be wrong to treat you differently to Mackenzie even though you are the least attractive of the two of you," he told Mackay. "You did not even pay all that was due to your co-conspirator, or indeed pay the VAT element, and you put in a false VAT return. You show no remorse or acknowledgement of your dishonesty."
Mackay was also disqualified from acting as a company director for five years, along with his sentence of three years in prison. The judge was particularly critical of Lowe, who was sentenced to two years for money laundering – his offence was to launder, or "clean" the payment to Mackenzie by routing it via Florida and also issuing false documents to disguise it. Detective Sergeant Ian Penman of Derbyshire Police's economic crime unit, assisted by just one detective constable, raided and searched Lowe's office in Monaco and took away Lowe's computer, on which the police found emails pointing to the scam.
"You, better than anyone else, should know the seriousness of money laundering," Judge Alexander told Lowe when sentencing him. "You tried very hard to cover it all up once it came to light, but unfortunately for you very incriminating documents were found on the computer. I suspect you never thought the investigating officers would bother to visit Monaco and recover the material."
The judge, throughout his remarks on Monday, stressed repeatedly that fraud is a serious offence, which "eats away at the financial structure of society" and "requires a lot of work to investigate and prosecute." In his address to all of them, Keith, Mackenzie, Mackay and Lowe, he said: "Before your convictions all four of you were men of some prominence in your respective professional lives and to some extent public figures. The spectre of prominent members of society behaving in such a dishonest way on this scale, without any apparent hesitation, conscience or remorse, is very unedifying and can only be dealt with by immediate custodial sentences.
"It struck me during the trial that you, like so many people who commit business and professional crime, somehow give the impression that you do not believe the rules apply to you, and that what you do in your business life is perfectly acceptable."
Penman's painstaking investigation of the grim events at Derbyshire's other Football League club, Chesterfield between 2000 and 2001, led to the conviction of the former chairman, Darren Brown, for fraudulent trading and a four-year prison sentence. After the convictions of the Derby four, DS Penman said: "This was an extremely important investigation because Derby County Football Club is an integral part of the local community.
"We took in excess of 150 witness statements and trawled through hundreds of documents from some 70 sources in order to piece together the intricate jigsaw puzzle which, when completed, pointed to a criminal conspiracy and a cover up. Lies had been told by Keith and Mackenzie to various interested parties including the bank, administrators and the media."
David Levy, the assistant director of the Fraud Prosecution Service, paid tribute to Derbyshire Police and to his own senior prosecutor, Rajinder Bhatta, who worked on bringing the case to trial. "We deal with many fraud cases," Levy said, "where people take money because they are greedy and believe they can get away with it. This was a difficult case for the police to investigate, to unravel the fraud, and a difficult case to prepare to present to the jury clearly and coherently what these defendants had been up to. The result has come about through excellent teamwork between the police, the FPS and counsel in court."
In April 2006, with Derby struggling in the Championship and £54m in debt, Gadsby managed to secure control of the club, partly after exposing the £375,000 taken out by Keith, Mackay and Mackenzie.
Keith was still at that time trying to cling on to ownership of Derby, backed by a venture capital fund. Gadsby succeeded with a £20m takeover, cleared more debt still owing to the Co-Op and the following season Derby won promotion to the Premier League with a 1-0 win over West Bromwich Albion via the play-offs. Gadsby, though, found it difficult financially to marshal survival for the club, who were relegated the following season with the lowest points total ever in the Premier League. In October 2007 Gadsby stood down as the chairman and three months later he and his consortium sold Derby to the US consultancy GSE, who were backed by investors.
Gadsby said of the jail sentences this week: "It draws a line under an unhappy period for Derby County and the people who betrayed the club. The club was heading for disaster at that time, with debts spiralling and evidence of fraudulent practice. Without the sustained opposition of the supporters trust to Keith's regime we would not have been able to take the club over. They showed the Co-Op Bank very clearly that there was only one choice for the fans."
Jim Wheeler and Elaine Dean, board members of Ramstrust, who had been in court to see the four men sentenced, said afterwards: "We feel that the convictions and sentences vindicate our campaign which began in 2003 when the trust battled to bring the truth to light over the financial dealings at the club. Some supporters groups opposed us at the time but we hope this shows other fans that they must ask questions and think before welcoming into the boardroom 'businessmen' who have no previous association with their clubs. We hope this episode also highlights the value of supporters trusts, whose role is to be vigilant about how their clubs are run."
Since 2004, the FA, Football and Premier Leagues have introduced the rule that directors and 30% owners of clubs must be "fit and proper." That requires them to have no previous convictions and not to have been directors in two football club insolvencies. Keith, Mackay and Mackenzie would all have passed that test and been welcomed in even if it had been in force when Keith engineered his £3 takeover of Derby County, backed by the Panamanian ABC Corporation, in October 2003.
It is still, very often, up to the fans, loyal to their clubs for life, to watch what these people get up to, once inside football's golden circle.
www.guardian.co.uk/sport/david-conn-inside-sport-blog/2009/jul/22/david-conn-inside-sport-derby
