Maxima owns copyright to this article, but it's my story. Besides, they did not respond to my request to reproduce it.
For Peter Bostock read: Paul Bantock
For Malcolm Taylor read: Michael Turner
For Simon Daubney read: Steven Daultrey
For Briefs Encounters read: Francis Read
For Jetsom Marketing read: Jetstream Marketing
For JML read: Jetstream Marketing Limited
For Robert Lonnegan read: Richard Donnellan
A costly way to learn...
It is not often that a fraud victim approaches a publication voluntarily to tell how they were conned, but that is
what one if Inside Fraud Bulletin reader has done. It makes for a harrowing, yet compelling story. All names have
been changed for legal reasons which will become apparent.
TRUST AND CYNICISM: A FINE LINE
Risks and Control
Everyone likes to think they are on the ball, that they are a good judge of character. “You would have to get up early to catch me out” is a popular refrain, said by many and thought by most. But where does natural cynicism end and trust begin? For if there was no trust, there would be no relationships, business or otherwise. It is often said that life is all about risks. If you never take a risk, you never achieve anything. This is true, but only up to a point. The secret is to make sure your gambles are calculated, your decisions are measured – and your risks are controlled. This salutary tale concerns a hard working man who was unwittingly duped into entering a disastrous business arrangement from which he is still struggling to recover, six years on.
For almost 20 years, Peter Bostock had worked with his father in a furniture business, and when the time came for his father to retire, he decided not to continue the firm, but to preserve the £90,000 nest egg he had built up and to go traveling around the world as he had always dreamed. This was in the early 1990s. Upon his return he was contacted out of the blue by an old acquaintance, Malcolm Taylor, who had been a neighbour of one of his former business premises and whom he had known, loosely, for five years as an ostensibly successful businessman. Bostock was surprised by this approach, as he had moved house since their last contact, suggesting that Taylor had taken some trouble to find him (remember, this was in the Dark Ages before widespread Internet use). The correspondence concerned a proposal to establish a kitchen appliance distribution company, which Bostock deemed to have potential. The two met, and Taylor told a tale of woe concerning his financial situation, which was lean because he had been the victim of a fraud perpetrated by an overseas law firm, which had fortuitously admitted liability. His solicitors were in the process of securing a six figure sum in compensation, he said. Bostock took this assurance on face value, as it came from someone not unknown to him. Taylor suggested that the venture be funded initially by Bostock, with match funding coming later when his compensation came through.
The next step was to appoint commercial lawyers to assist in the formation of the agreed new company. Taylor suggested using his own lawyers, who handled his business affairs and who at the time were pursuing his compensation claim. A meeting was arranged with Simon Daubney at the London-based practice to which he was attached. The offices of Briefs Encounters looked swish and the location was impressive, and though the conversation centred almost entirely on Taylor’s affairs rather than on the formation of the company, Bostock felt that his associate must have fully briefed Daubney as to their requirements beforehand, and so left confident in the knowledge that a competent firm had been retained to undertake the legal duties of the new venture. Auditors were also needed, and once again Taylor suggested a meeting with his business accountants, who were subsequently retained. The first warning sign that not all was going to plan came weeks later, when the company, Jetsom Marketing Limited (JML), was formed from a stock company by the accountants, and not the lawyers.
MONEY IN THE BANK
A bank account was established, this time using Bostock’s branch. This was only fitting, considering that it was Bostock who was transferring £20,000 of his own money into this new account for start up capital. But as soon as this was done, Taylor raised the question of company salaries. Bostock agreed to modest salaries, as he thought this would alleviate some of the stress that his new business partner must be feeling in the interim period before his compensation materialised. Following a PR campaign, Taylor excitedly told Bostock of a new customer with the potential to be a big client. He assured him that he had checked their financial background with Dun & Bradstreet, and through sources in the distribution trade. This company, Park Royal International Deliveries (PRID), placed a small order with JML.
ON THE NEVER-NEVER
JML had secured a line of credit with an Italian supplier, but this had not been fully exploited. However, it became fully operational towards the end of 1994, when PRID placed a large order worth around £80,000 on credit terms. Bostock thought this to be an unnecessary risk, but agreed to meet the order provided. In the meantime, Taylor suggested the need for business premises, and a small office and store for their business was found in Teddington, Middlesex, though a lease was not signed at this time. PRID had promised to pay by Christmas, but nothing arrived. Taylor showed his colleague a watch he had been given by PRID’s General Manager as proof of their honest intentions.
NEW YEAR’S GRIEF
All Debits, No Credits
The New Year of 1995 saw the realisation dawn that PRID had absconded with JML’s stock, together with that of other companies. This was to be the beginning of the end for JML. Bostock reported the matter to the police, though Taylor seemed reluctant to do so. To make matters worse for Bostock, Taylor’s promised match funding was still not forthcoming. A three-year lease for the Teddington premises was signed regardless of the uncertain situation the company was in, and a secretarial assistant was employed on Taylor’s suggestion. Soon afterwards, however, he dropped the bombshell that there were delays in his compensation payment. Bostock’s health began to fade as the implications of directing an insolvent company began to sink in, but he was buoyed by Simon Daubney, the solicitor retained at the outset. Daubney had since moved to another London law firm, Lonnegan & Co, and suggested that one of his clients might be interested in investing in JML.
DEEPER AND DEEPER
As time progressed, Daubney’s promises to find an investor became more positive and frequent, and on this basis a contract vehicle hire agreement was signed with a Kingston firm. JML’s two directors were required to personally guarantee the agreements in the event there was a shortfall if the company breached the contract. It later transpired that Taylor had given a false address when he signed the papers, after Bostock had done so faithfully. Salaries to the two directors were stopped by Bostock in the aftermath of the PRID fraud, but he did plough the last of his savings into the company to pay bailiffs acting on behalf of creditors, the secretarial assistant’s wages and other debts. The true state of JML’s finances was not disclosed to its benefactor, though. Bostock was often away from the office in his capacity as sales and marketing supremo, and in his absence all post was being read by his associate but not relayed.
Illicit Sell Off Hidden
In April 1995, things briefly appeared to be looking up when Taylor said that some of his compensation had come through. It later emerged the money was in fact a down payment for a 10 per cent stake in JML which he had agreed to sell without his partner’s knowledge or permission. The investor concerned has detailed in a letter to Peter Bostock a record of a meeting held by Malcolm Taylor with two of its directors, in which they refer to Taylor producing a fax from JML’s lawyers which showed a balance of £1.1 million, ‘a part of which’ was allocated to JML. It was on this basis that they agreed to invest £7,000 for a 10 per cent shareholding. Optimism was short-lived, however, and within weeks Taylor suggested using a factoring company to alleviate the cash flow crisis. The factoring company agreed to both pay JML for invoices issued to third parties, and to fund the purchase of stock against orders received. Like the contract vehicle hire firm, this company required directors’ personal guarantees, and like the small dealer looking to invest 10 per cent, they had been told by Taylor that JML’s solicitors held significant sums on its behalf. A letter from the factoring firm to Peter Bostock refers to £50,000 from an American investor and £25,000 from a UK source. Both were fictitious.
A FATAL BLOW
From Riches to Rags
If the factoring deal seemed like a saving grace, it really just served to accelerate JML’s demise, as the capital injection led to the company’s bank withdrawing the £15,000 overdraft facility which had been arranged at the time the account was set up. Soon afterwards the bank contacted JML to offer a business development loan, and the relevant documents were signed by both directors in the presence of Robert Lonnegan, the principal solicitor of Simon Daubney’s new employer (Daubney himself being too busy to oversee the signing of the two signatures, apparently; however, when prompted by Taylor on news of the promised cash boost from his clients, he made time to be as positive and encouraging as ever). In the space of a year, Bostock had lost the entire fruits of his labours over two decades, but if that was not enough, he was also indebted to the bank, the contract vehicle hire company and the factoring firm.
Matters came to a head towards the end of 1995. Bostock informed Taylor he was no longer willing, or indeed able, to continue bankrolling JML, with immediate effect. He told Taylor that he and Daubney must therefore deliver the funding they had promised. The cat was now amongst the pigeons, and the feathers flew. Taylor called in an insolvency practitioner soon afterwards (though it later became apparent that he had been in discussions with the practitioner for some time before this), and the outcome was that Taylor finally admitted that the long anticipated shot in the arm would not be forthcoming. Liquidation was the only option, he said, and early in 1996 the company was put into creditors’ voluntary liquidation. Bostock suffered a breakdown, his world having collapsed around him.
In the aftermath of this, he set about trying to make sense of what had happened, and made some interesting discoveries. He wrote to Simon Daubney at his company’s offices, but received no reply. Telephone calls were not returned, though questions to the receptionist concerning Daubney’s status as a practising solicitor were answered positively. It was only when he contacted the Law Society that the truth came to the fore. Bostock learned that the man who Taylor had recommended JML use had actually been struck off the Rolls as long ago as 1982 for misusing client funds and for making misleading and untrue statements to clients, and that he had not been reinstated since. The practices for which he had worked should not have allowed him to represent himself as a solicitor. Not only that, but the second practice, Lonnegan & Co, had been intervened (in effect closed down) by the Law Society in February 1996 amid a police investigation. The receptionist who had answered the telephone was in the employ of another firm of solicitors which had been engaged by the Law Society to manage the company, and she had been quite wrong to represent Daubney as a solicitor. Bostock had been led to believe that JML were clients of both Briefs Encounters and Lonnegan & Co, but in reality their only legal representation had come from a man who should not have been practising as a solicitor, or been giving himself that title.
ON A LIMB
Armed with this information, Bostock got in touch with the Solicitors Complaints Bureau, which wrote back to say that as Daubney was not a solicitor at the time of his handling of JML’s affairs, it was not a matter for them. As Bostock himself noted, it was therefore not the fault of the owners of the damaged stairs from which the victim fell to his death, but rather it was the responsibility of the owner of the ground on which he fell...
Investigations carried out by the factoring firm and later passed on to Bostock found that Taylor was hopelessly in debt at the time of his business pitch, and had several County Court Judgments against him. This was not all. He was a convicted fraudster who had served time in prison. This was known to both law firms and to the accountants. Bostock wrote to Briefs Encounters, who in turn tipped off Taylor. The ex-con exhibited typical criminal behaviour by making a threatening telephone call to his former business partner, warning him not to contact the law firm again. Taylor’s duplicitous correspondence – such as his letters to the small investor detailing the 10 per cent share deal undertaken behind his colleague’s back – was recovered from JML’s computer (apparently he was PC-illiterate, and did not know about deleting files). It also transpired that he had in fact begun another enterprise which had a similar name before JML had ceased trading, and this company began doing business with one of JML’s Italian suppliers. The Italian firm now regret such an association; a fax from them to Peter Bostock in November 1997 asked for his help in suggesting a credit recovery agency in the UK which might be able to help them recover funds from Taylor’s new venture, which had evidently run up a number of unpaid bills. The perpetrators of the PRID credit fraud were successfully prosecuted at Southwark Crown Court. Showing the lack of honour that typifies thieves, two of the defendants pleaded guilty to charges of conspiracy to defraud creditors and gave evidenceagainst the third, who had pleaded not guilty. They received sentences ranging from 18 months to three years. The principal solicitor of Lonnegan & Co, Robert Lonnegan, was recently struck off the Rolls after routine inspections discovered large scale accounting anomalies, including the misappropriation of client funds, and for his employment of Simon Daubney. The liquidator of JML has recently awarded Bostock his rights in litigation, but with repeated applications for Legal Aid having been refused, the chances of him being able to claw back some of his losses do not seem high, and of course creditors are still hounding him for recompense. The one glimmer of good news he has received is that the factoring company has dropped all action against him, though it continues to pursue Malcolm Taylor. However, in a submission to the if Bulletin, Bostock paints a sad picture of the present position: “I have had to dispose of my few remaining unessential possessions. [A JML creditor] now threatens to compound my distress and difficulties by deploying bailiffs to secure property that I do not possess”.
COMMENTS AND LESSONS
Hindsight is a wonderful thing, but it can also be mercilessly cruel. Peter Bostock’s trust was played upon and taken advantage of until his patience finally snapped and he forced Malcolm Taylor’s hand, leading to the demise of the venture which he had entered in good faith. Taylor had taken lengths to track down a man he knew to have a tidy sum in the bank, a sum he might be willing to invest. He spun him a story of how he had been the victim of a fraud himself. He then suggested using the solicitor who was in the process of claiming a six figure sum from the fraudsters. The bent brief went along with this ruse to further gull the hapless Bostock. The accountants too were chosen by Taylor, and it was significant that they undertook the formation of the company rather than Daubney. The silver-tongued Taylor talked Bostock into extending credit to a fraudster, giving assurances that PRID was a reputable company. He ultimately failed to inject match funding, and only changed his story that the money was to come from America ‘imminently’ when it was clear the company was in difficulties in the aftermath of the PRID fraud – and after a three year lease had been signed for premises. It is clear that he and Daubney were working together; witness the timing of the latter’s offer to find an investor (immediately after Taylor told Bostock there were problems securing his compensation); the Taylor-prompted positive response concerning client investor status at Lonnegan & Co’s offices (when he was too busy to witness their signatures, he had time to ease Bostock’s fears); and the fact that Daubney sent Taylor a fax showing a £1.1 million client account (witnessed by Bostock) which was then shown to potential investors as proof of JML’s solvency. The 10 per cent share issue was bad enough in itself, but the money it generated was presented as being part of the compensation arrangement – a real double whammy. The lack of communication regarding the state of JML’s finances and the establishment of his own company (with a very similar name to Jetsom Marketing Limited) suggests that Malcolm Taylor was as slippery as an eel, but the unanswered question in this whole sorry saga is – why? What was in it for him? He still has creditors chasing him. Any offered explanations are pure speculation in the absence of evidence, but one possible theory could be that he wanted a leg up in business (he lacked the means to achieve this on his own) so that he could indulge in criminal activity, and money laundering and embezzlement would seem to be credible options here. A convicted fraudster and a struck off solicitor with a known fondness for other peoples’ money working in cahoots would suggest naughtiness was not far away. The spanner in the works was that JML became a victim of fraud (oh the irony), and at a stroke lost £60,000. This marked the beginning of the end, before Messrs Taylor and Daubney could fully effect whatever scheme they may have been working on. Bostock puts his losses, taking into account the guarantees he gave, at £160,000. The lessons seem obvious now, but to a trusting and, by his own admission, naive person on his own, the preventive measures which should have been taken were considered unnecessary. If he could turn back the clock, Bostock would conduct extensive due diligence enquiries. This would have produced enough evidence of Taylor’s colourful past to put any ideas of going into business with the man out of his head. This case shows that you do not always have to be the target of the fraudster to be a victim. Taylor’s motives are not known, but it would seem unlikely that he would countersign guarantees just to let the company fall into liquidation and so risk harassment from creditors. As has been suggested, it is more likely that he planned to either defraud others directly (perhaps by doing exactly what PRID did to JML, and not pay for stock subsequently sold on) or indirectly through a money laundering operation. One other lesson that can be learned from the unfortunate Mr Bostock’s story is that questions should always be asked, whatever the business situation, regarding matters with which you are not familiar. He was too agreeable to Taylor’s suggestions, and though he might have had question marks in his mind, these remained unanswered as the questions were never asked. When an answer still leaves the question mark lurking (especially true when talking with accountants and lawyers), keep asking the same question until you can elicit a comprehensible answer. And try to ask questions which leave no room for manoeuvre. It is very difficult to backtrack from a straight Yes or No. We all learn from experience, but sometimes there is an expensive and painful price to be paid for the wisdom it brings.
Rule 1: Never approve anything you don’t understand
Rule 2: Blind trust is the biggest liability of all
Rule 3: When presented with a staggering business
opportunity, always ask “Why me?”.
Note:Due diligence is one thing, but when prospective investors are not allowed by law to conduct appropriate enquiries, there's little hope for them at all. See: Lawyers for your Business.