| Independent Insurance bosses jailed |
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| Wednesday, 24 October 2007 | |
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Page 3 of 3 In February 2000 a contract was negotiated which provided £50 million cover to IIG for £20 million premium. It was described as a “sleep easy”, necessary because Watson Wyatt were concerned about the level of reserves in the London Market account. In the latter quarter of 2000 it was realised that in fact this reinsurance cover was not going to be enough. Negotiations commenced for further cover.The additional cover sought was considerable. Without the additional cover the 2000 accounts would have shown a significant loss. The ERC group agreed to provide the necessary cover and three contracts were proposed. In effect these contracts acted for the benefit of IIG. They were referred to during the trial as “the good contracts”. They were signed by IRECO on 5th March 2001. They had to be in place by this date because the contracts needed to be reflected in the 2000 accounts. They effectively improved the position of the company for the purpose of the 2000 accounts by £100 million, changing a potential loss to a profit. When Watson Wyatt and KPMG, the company's auditors, saw the good contracts they wondered why ERC would enter into what appeared to be one sided and loss making agreements. They required formal confirmation from IIC that there were no undisclosed side agreements. This was duly provided by IIC's CEO Mike Bright. In fact Bright had signed a number of additional contracts on 2nd March 2001 These contracts were for the benefit of ERC and had the effect of providing security to ERC, they were “bad contracts” as far as IIC were concerned. They included two addenda that reduced the benefit to IIC of two of the good contracts and a contract which wrapped up the whole package of reinsurance contracts providing effectively that if ERC lost any money though the arrangements with IIC they would be repaid. The 2000 accounts disclosed the existence of the good contracts with their consequent improvement of the company's profit and loss account and balance sheet but did not refer to the bad contracts. Apart from the defendants the prosecution alleged that no member of the IIC or IIG board or audit committee was aware of the bad contracts. It was alleged by the prosecution that Bright and Lomas were fully involved in the negotiations for the reinsurance cover and knew that the bad contracts had to be signed in order for the good contracts to be provided. In this part of the case the prosecution alleged that Condon must have been aware of the reinsurance negotiations and the fact that the ERC group were no longer content to provide the reinsurance required without binding contracts to protect their own position. Conspiracy to defraud The SFO accepted the case for investigation on 20 June 2001. They were assisted in the investigation by officers from the City of London Police. The Financial Services Authority also provided assistance. The defendants were charged with conspiracy to defraud on 9th December 2005. They appeared at the City of London Magistrates Court on 16th December 2005 from where the case was sent to Southwark Crown Court. The evidence was served on 24th February 2006. The trial started at Southwark Crown Court before His Honour Judge Rivlin QC on 31st May 2007. After nine days of deliberations, the jury found all three directors guilty of conspiracy to defraud. Bright and Lomas were also found guilty of "dishonestly making incomplete disclosure" in respect of the reinsurance contracts. Related links |
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