Case No. CO-934-2005-&-CO-3620-2005

LP. On 6 March 2000 (the day of the RBS takeover) after conferring with Fastow and Mulgrew Kopper sent an offer letter to the defendant Darby, offering $1,000,000 for GNW/the Bank’s interest in Swap Sub. The next day, 7 March, the Campsie board of directors considered the offer together with a memorandum recommending acceptance written by the defendant Darby and an employee of the Bank called Dai Clement who figures elsewhere in the history. The memorandum contained the statement, “[t]here is clearly no way we can generate any profit (if any exists) from this subsidiary until 2004”. The Campsie board (including Bermingham, who recommended that the offer be accepted) approved the proposed sale, which was duly effected. GNW accordingly sold its shares in Swap Sub to Southampton LP for $1,000,000 by an agreement entered into on 17 March 2000.27.Meantime Kopper had established a vehicle called Southampton K Co in the Cayman Islands. Southampton K Co took a 50% stake in Southampton LP. Bermingham drafted an option agreement by which he and the other defendants became entitled to acquire the whole interest in Sourthampton K Co from Kopper. The option was exercised in April 2000. Before that, however, on 22 March, an agreement was entered into between Enron, Swap Sub and Southampton LP whose effect was that after the conclusion of certain transactions by 28 April 2000 Swap Sub would be left with a residual value of some $30,000,000. Swap Sub accordingly received about that sum. $10,000,000 went to buy out CSFB. About $15,000,000 of the remainder was attributable to the interest in Swap Sub previously held by GNW.28.On 1 May 2000 Kopper caused $7,352,626 to be transferred by wire to an account in the Cayman Islands held in the name of Southampton K Co. This money was divided between the defendants. The remaining $12,300,000 odd was shared by Kopper and Fastow. The prosecutor says that by means of these transactions the defendants defrauded GNW/the Bank of the $7.3m odd which they received. It was money which in fact represented part of GNW’s interest in Swap Sub. The whole scheme is summarised by Mr Hanusik, Senior Counsel for Securities Fraud with the United States Department of Justice, in paragraphs 7 and 8 of his affidavit sworn on 21 January 2004 in support of the extradition request: “7. Between February and August 2000, David Bermingham, Giles Darby, Gary Mulgrew, Enron Chief Financial Officer Andrew Fastow and Enron Managing Director Michael Kopper devised and executed a scheme to defraud NatWest. The essence of the scheme was that, by misrepresentations, omissions, and deceit, the co-schemers caused NatWest to sell its interest in a limited partnership for $1 million to an entity that the co-schemers secretly controlled. The co-schemers knew that NatWest’s interest in the partnership was worth well in excess of $1 million. In fact, weeks later, the entity that David Bermingham, Giles Darby and Gary Mulgrew secretly controlled received approximately $7.3 million for one-half of the same interest that they caused NatWest to sell for $1 million.8. The three NatWest employees charged in the scheme… each received approximately $2.4 million for their participation in the scheme. Each of the defendants recommended that NatWest sell its interest for $1 million, but none of them disclosed to NatWest that the interest in the partnership was, in fact, worth far more, or that they were investing in the entity that was buying that same interest…”29.The full details of the defendants’ defence – of course perfectly properly – have not yet been deployed. As I understand it in barest outline, they do not dispute that they got the $7.3m; indeed they paid UK tax on it. But they deny any fraud on their employers. GNW’s sale of its stake in Swap Sub for $1,000,000 was at a proper value. The defendants’ later profit was adventitious, and perfectly honest. The meeting of 22 February 2000 had no sinister purpose. It was held to discuss issues of corporate re-structuring. Later Events to January 2004 30.On 8 November 2001 Enron filed a statement with the United States Securities and Exchange Commission (“the SEC”) re-stating its accounts for the previous three years. It also announced that the SEC was investigating certain transactions, including those relating to Swap Sub. By then the defendants were employed by the Royal Bank of Canada, to whom they made a report about their investment in 2000. They also approached the Financial Services Authority (“the FSA”) in order (according to Bermingham’s statement of 14 February 2005) to offer their assistance to the SEC investigation. They were interviewed by officers of the FSA and handed over various documents.31.On 8 February 2002, pursuant to certain statutory disclosure provisions, the RBS submitted a “money laundering suspicion report” to the National Criminal Intelligence Service (“the NCIS”) to the effect that the defendants may have been involved in a fraud or fraudulent conspiracy “the main victim of which was probably Enron (although it may be that NatWest was also a victim)”. The NCIS passed this on to the City of London Police on 11 February 2002. On 4 March 2002 the FSA disclosed to the SEC documents which had been supplied by the defendants to them. 32.There followed a series of communications in June 2002 to which Mr Jones attaches some importance in both the judicial review and the appeal, and I must deal with it in some little detail. On 13 June 2002 Mr Tim Crump, of the Enforcement Division of the FSA, wrote to the Assistant Director of the SFO as follows:“I refer to your recent telephone conversation with Ken O’Donnell in relation to the activities of Messrs Darby, Mulgrew and Bermingham as disclosed to you at a presentation by the FBI on 12 June 2002.The [FSA] has been reviewing the individuals’ conduct following their disclosure to us of information regarding their involvement in transactions relating to Enron. To date no formal investigation has commenced. However a disclosure of information was made to the [SEC] on 4 March 2002 on the basis that the US authorities were the most appropriate to investigate the matter.At the time FSA possessed no evidence of a crime occurring in the UK. [RBS] informed the FSA that it had reported its suspicions to the City of London Police… Subsequently FSA discussed the matter with the police and was informed that without further evidence they were unlikely to take the matter forward…At a meeting yesterday at FSA, the FBI stated that it intended to conduct interviews with various witnesses based in the UK. FSA had been given no prior warning that this was to happen. At the same meeting it was confirmed that the joint US Department of Justice, SEC and FBI investigation into events at Enron possesses evidence that a fraud may have taken place in the UK. Again this was the first time that FSA had been informed of this.For your information I have enclosed documents which were disclosed to SEC. These set out our understanding of the transactions that took place and a summary of the information obtained by FSA at that time…To the extent that any of the information enclosed with this letter is confidential information under section 348 of the Financial Services and Markets Act 2000, it is disclosed to you in accordance with… Regulations… for the purpose of any criminal investigation or for the purpose of initiating any such investigation or facilitating a determination of whether it should be initiated.”The summary there referred to is a 4-page document which bears no date or signature, but which clearly emanated from within the FSA, presumably the Enforcement Division. Its terms suggest it was written after the defendants were interviewed but before the FSA disclosed documents to the SEC. These observations appear towards the end of the document:“18. Supervision and Enforcement have held two meetings with senior staff of RBS, at which explanations of the procedures followed and of NWB’s and later RBS’s involvement with LJM1 were provided. On the basis of these explanations and documents it appears that:(a) the procedures laid down by NWB at the time for making significant investments were followed and included quite thorough due diligence and a final sign off by the then chief executive of NWB, Derek Wanless, and(b) the decision to dispose of the investment was properly taken in accordance with the procedures in place at the time.19. However, examination of the documentation has revealed that the valuation memo signed off by GM was dated 20 March 2000 – three days after the sale and the day that the three individuals signed the option.…22. FSA asked RBS to undertake a revaluation of its stake in Swap Sub at the time of the sale to Southampton LP. This has resulted in a figure very much in line with the original. However RBS has noticed slight peculiarities in the original paperwork and an arithmetical error in the calculations. The correctly calculated figure would still have been well within the discretionary limits of local management to accept the offer.Preliminary Conclusions23.On the basis of the information gathered to date it would appear that prima facie there appears to be evidence that the three individuals were subject to a major conflict of interest. To take the matter further FSA would need to obtain evidence from a number of key witnesses, including Mr Kopper and Mr Fastow. Furthermore supporting documentation would be required from the Cayman Islands and USA. Obtaining this would involve jurisdictional issues and issues of availability of witnesses given the apparently large number of existing investigations into these matters.24.It is also possible that the US$ 7.3 million received by the three individuals may have represented the proceeds of fraudulent activity. However the location of any such fraud is clearly in an overseas jurisdiction and is more properly the concern of the regulators in that jurisdiction.”33.I will of course give a full account of the issues that fall for our determination in due course. However it is perhaps useful just to indicate at this stage, in barest outline, the nature of Mr Jones’ concerns in relation to this material as it affects both sets of proceedings before us. I should first notice that although the defendants’ solicitors enquired about evidence of valuation as early as August 2004, the letter of 13 June 2002 and the FSA summary (together with two file notes recording communications between the FSA and the City of London Police) were not disclosed to them until 29 September 2005, when the Treasury Solicitor disclosed them at the request of the FSA. Mr Jones says that the letter calls into question the accuracy of paragraph 3 of the Director’s statement of 20 July 2005, where he said this:“It was not until I received a letter dated 23 July 2004 from the firm of solicitors, Jeffrey Green Russell, that I was asked to consider whether the SFO should investigate the allegations against their clients.”In fact it is stated in a letter from the Treasury Solicitor of 25 October 2005 on behalf of the Director that the SFO has no record or recollection of any such presentation or meeting as is referred to in the letter of 13 June 2002. It is surmised that there may have been an informal meeting. It is not denied that the SFO received the documents sent to it.34.Mr Jones says that the material is relevant to the question whether the SFO considered whether to start an investigation in 2002, and that bears on the judicial review proceedings. As for the statutory appeal, the failure (as Mr Jones categorises it) to disclose, in the extradition proceedings, the revaluation of GNW/the Bank’s interest in Swap Sub which is spoken to in the FSA summary underlies Mr Jones’ submission, to which I will come, that those proceedings were an abuse of the process of the court. He submits also that the evidence of the revaluation cannot have been placed before the federal Grand Jury which returned the indictment in Texas against the defendants (I shall come to this shortly). He says that this too is grist to the abuse of process mill because it may throw light on the true intentions of the American prosecutor in seeking to bring charges in Texas for an offence of wire fraud where the only named loser was an English company, the Bank. 35.Before returning to the narrative it is useful to notice that these two aspects, the SFO’s consideration in 2002 of the possibility of a prosecution in England and the intentions of the American prosecutor, march together in a submission advanced by Mr Jones in a supplementary skeleton argument in the judicial review dated 11 November 2005:“8. If the [Director] did receive materials with a view to considering whether to commence an investigation, a decision by the SFO not to proceed in 2002 is explicable on the basis as recorded [in a file note prepared by a detective sergeant in the City of London Police] that it appeared to Tim Crump of the FSA that the prosecution of the Appellants had been brought for the ulterior purpose of obtaining evidence against people involved in Enron.”The file note is dated 15 July 2002. It contains this observation:“Tim [Crump] has also indicated that the Dept of Justice have bigger fish to fry in the US and are probably aiming towards using BERMINGHAM and others to prosecute the ENRON individuals.”On 24 July 2002 another file note, made by the Financial Investigation Unit of the City of London Police, records that the case is “related to the Enron Corporation, but the centre of gravity is in the USA and FSA/SFO have the UK angle covered.”36.On 21 August 2002 Kopper pleaded guilty to an information containing two conspiracy counts which had been filed against him in the Southern District of Texas. On the same day he entered into what is called a co-operation agreement with the United States government. Mr Hanusik says (paragraph 9 of his affidavit of 21 January 2004) that “[i]n his Cooperation Agreement, Michael J Kopper stipulated to facts concerning the same scheme to defraud NatWest underlying this extradition request”. The agreement states (paragraph 2) that Kopper’s sentence “is governed by the United States Sentencing Guidelines” of which more later. It then recites (paragraph 3) the prosecutor’s acceptance of a “downward adjustment” of the sentence in return for his specific agreement to a number of specific matters, including:“(d) Defendant agrees to testify at any proceeding in the Southern District of Texas or elsewhere as requested by the Department.”There follows at paragraph 14 a heading “Stipulated Factual Basis for Guilty Plea”. It is there stated, “In pleading guilty, Defendant acknowledges that all of the facts stated below are true, and were the case to go to trial, the Department would be able to prove all of those facts beyond a reasonable doubt.” There is then set out a detailed narrative which includes the following:“Southampton: In approximately February 2000, Enron’s CFO, KOPPER, three bankers employed by [the Bank] and others devised a scheme to defraud Enron and others in connection with a buyout of the investment interests of [the Bank] and [CSFB] in an SPE entity called Swap Sub.To carry out the scheme, KOPPER… and others caused Enron to pay $30 million for the Swap Sub buyout. That price was based on Enron’s CFO’s false representation to Enron that [the Bank] and CSFB had agreed to sell their interests in Swap Sub for $20 million and $10 million, respectively. In fact, [the Bank] received only $1 million and had agreed to receive this sum based on fraudulent misrepresentations and fraudulent conduct of its own employees, who sought to skim profits that should have gone to [the Bank].As a result, the three NatWest bankers who participated in the scheme received approximately $7.3 million.”37.Then on 12 September 2002 a federal Grand Jury sitting in the Southern District of Texas returned an indictment (“the Texas indictment”) charging the defendants with wire fraud and aiding and abetting wire fraud. Specific offences are charged at counts 1 – 7, but the essence of the case is contained in paragraph 10 of the Texas indictment:“Between approximately February 2000 and August 2000, defendants David Bermingham, Giles Darby, and Gary Mulgrew, and others, devised and executed a scheme to defraud NatWest and GNW and deprive them of money and their right to honest services by recommending to GNW that it sell its interest in Swab Sub for only $1m, when the defendants knew that GNW’s interest was worth far more, and when the defendants were planning fraudulently to convert the balance of GNW’s interest to themselves and others.”