An extraordinary case of an accountant overstepping over the line.

28/04/2010

In mid 2008, the Court heard evidence from an accountant who was charged with fraud and served a prison sentence of 9 months but was ultimately acquitted of money laundering and conspiracy to defraud. His former client, who brought the civil claim against him in negligence and deceit for over £500,000, had also been charged with fraud and admitted using a false instrument and was also convicted of conspiring to furnish false information.

The claimant, Mr Bampton, had advanced sums to Mr Rust, his accountant and the principal and proprietor of an accountancy firm (the second defendant). Mr Rust acted for several wealthy company and individuals but a substantial amount of the firm's fees emanated from a group of companies with dealings in West Africa and in particular, Nigeria (the "FAG Group"). Mr Rust spent a proportion of his every week at the FAG group's offices giving accountancy advice and negotiating contracts with governments in Africa and European Banks, helping the group of companies raise finance.

Mr Rust met with Mr Bampton in 2001 when Mr Bampton sought advice on buying an offshore property. Mr Rust referred Mr Bampton to a Mr Rodgers, who could arrange for the purchase of an off shore company. He also gave advice about securing investments pending his finding a suitable property. He said that several other clients were interested in similar secured investments and that as there was a pool of funds it could all be arranged within one week. At the trial, Mr Rust denied that he had ever given financial advice. He later made certain concessions during cross-examination and agreed that he gave Mr Bampton a recommendation to invest in FAG and described the work it did such that it left no doubt that the FAG investment was a good one. He also accepted that there was no discussion about any risks of making a loan and that he did not explain that FAG was having a cash flow crisis and needed a loan, nor did he mention obtaining any security.

Further advances were duly made during 2002 and 2003 by Mr Bampton which amounted to over £500,000.

Mr Bampton was not the only client of the firm to lend money to the FAG group. Mr Rust accepted that several other clients lent hundreds of thousands. These clients were called as witnesses for Mr Bampton and they each told the court that they did not know that the funds were going to FAG and one of the witnesses had in fact brought proceedings for £600,000 for an unpaid loan.

In 2003, Mr Bampton opened an account at the request of Mr Rust for the benefit of one of Mr Rust's clients who was based in Nigeria and who required a UK bank account to transfer US dollars for his shipping business. Mr Bampton was handsomely rewarded through commissions for the transfers. Some of the payments transfers also went through the firm's client accounts. In time, Barclays queried some of the payment transfers and both Mr Bampton and Mr Rust produced false invoices designed to conceal the source of the funds.

As mentioned, Mr Bampton was convicted but Mr Rust was acquitted following a Court of Appeal hearing and a retrial. Mr Bampton gave evidence for the prosecution.

Mr Bampton was not aware at the time he advanced his loans that the funds were going to FAG, which was heavily indebted. Nor did he know that the client account of the firm was repeatedly overdrawn because client funds were being improperly paid over to FAG. He only found out when he asked Mr Rust for some of his funds because he then wishes to purchase a property, as originally planned. Mr Rust explained the funds were not available. Their relationship broke down not long after that. A year later FAG went into liquidation and was £5million deficient.

The real issue for the court to determine was whose account was to be believed.

The court held:
..."In addressing this question, I bear very much in mind the fact that there are recorded against Mr Bampton criminal convictions involving systematic fraudulent activities about which he persistently lied to police officers. Mr Rust on the other hand succeeded with his appeal against his original convictions and was acquitted at his retrial. It follows that he is a person of good character.

...It is not, however, suggested and could not be suggested that the fact of Mr Bampton's convictions is dispositive of the outcome of this case. I have to bear in mind that, after trying to conceal his wrongdoing by telling persistent lies to the police, he did plead guilty to most of the charges of dishonesty against him. In the course of the present trial, he made no bones about his criminality and he appeared to me to be contrite about it.

...It is inevitable in a case of this kind that I take account of my impression of the parties as they gave their respective accounts from the witness box. It was obvious to me that Mr Bampton is a highly intelligent man who has made a great success of his businesses in the sphere of IT. He is plainly very interested in making money but he did not strike me as someone who is or was at the time of his dealings with Mr Rust particularly sophisticated in financial and investment fields. That appeared to me to emerge clearly from his attempts to explain from the witness box the difference between secured investments and secured loans. Mr Bampton's expertise lay in the field of computers at least in the period of his dealings with Mr Rust. As to the reliability of his evidence, it appeared to me that he was trying to give a truthful account of events as he remembered them.

...Mr Rust has spent 9 months in prison for crimes the second jury found that he did not commit. His professional career has been brought to an end. He appeared to me to be embittered by what has happened to him which is scarcely surprising. In assessing his reliability as a witness I make every allowance for that fact. I have to say, however, that he appeared to me to be an unreliable witness. He was combative and sometimes evasive when answering questions. I thought that he did on occasion falsely claim not to remember matters which he then recalled in considerable detail.

...In the course of the case I heard a good deal of evidence about the clientele of [the firm] and was taken in some detail through the client account ledger. Many of the firm's clients were Nigerian companies or individuals. Substantial sums are recorded as having been received into the account. I was unimpressed with Mr Rust's attempts to explain what the payments were or why they were paid to [his firm]. He allowed the client account to go into overdraft and he appears to have paid money into the client account from his own private account. He plainly had a very close relationship with [FAG's owner] and his companies. Indeed [the owner] is said to have described him as having been in effect acting as Finance Director of FAG. In these respects Mr Rust struck me as someone who was prepared to sail close to the wind."

The court rejected Mr Rust's denial as to giving Mr Bampton financial advice.

It was held that:
"Mr Rust made important concessions in the course of his oral evidence. It appears to me to be clear that, in giving that information to Mr Bampton, Mr Rust giving investment advice. It is immaterial whether or not Mr Rust named FAG as the bower; he was plainly recommending that client of his as being someone suitable for Mr Bampton to lend money to. It seems that Mr Rust does not regard giving that information about a prospective borrower as being "advice"; in that I think he is wrong."

The Court had no hesitation in finding against Mr Rust in negligence and deceit.

Mr Justice Gray said that:
..."The loans which are the subject of this claim were made in 2002 and 2003. The question is therefore whether a practitioner in the position of Mr Rust carefully considered the suitability in all the circumstances of Mr Bampton making those loans. Whatever may have been the position before2002, there can in my view be no doubt whatever n the evidence that by 2002 the financial position of both FAG UK and FAG International had deteriorated to the point where it was highly imprudent for Mr Bampton to be continuing to lend money to FAG.... As the effective Finance Director...Mr Rust cannot and does not claim to have been unaware of FAG's financial problems. They were plainly far from being temporary cash flow difficulties.

....in permitting Mr Bampton to continue to make loans to FAG and in failing to warn him of the scale of the indebtedness, Mr Rust was in dereliction of the duty which he owed to Mr Bampton as his client. The criticisms of Mr Rust's conduct are compounded by the fact that he and his firm were so intimately connected with FAG and the fact that he had personally lent large sums to FAG."

(Bampton v. Rust and another [2008] EWHC 3662 (QB))

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