Thursday, January 13, 2011

"British Madoff" admits guilt to £14M fraud

A London trader has pleaded guilty to setting up a Ponzi scheme that defrauded investors out of £14 million [$21.8 million]. Former GFX Capital director Terry Freeman, 62, admitted to fraudulent trading and a string of other offenses, police said in a statement Wednesday. Two of the charges are related to conducting business while leading a bankrupt company.

Freeman, from Buckhurst Hill in Essex, promised investors no risks and high returns on the foreign exchange markets. But instead, he used their money to pay for holiday homes in Cyprus and France as well as gifts for his Russian wife, Yegana. Amongst the gifts he gave the 30 year old were a £120,000 [$187,000] custom-made diamond engagement ring some £50,000 [$78,000] worth of Tiffany jewellery.

Freeman was arrested in February 2009, at around the time rogue trader Bernie Madoff was standing trial, and as the global recession was at its worst. While not on the same scale as Madoff's fraudulent dealings, Freeman's fraudulent pyramid scheme is nonetheless significant and has left many of his investors in financial ruin.

At the time the City of London police would only say that their Economic Crime Department had begun an investigation into GFX Capital Markets Ltd., a licensed, but separate, affiliate firm of the Swiss-based GFX Capital.

The Swiss firm grants clients like Freeman limited power of attorney, enabling them to act as effective "money managers" and solicit their own clients to trade on the GFX platform. Investors in Freeman business gave him the power to place trades, disburse money and pay fees in their name, though "critical account functions", such as cash withdrawals, were supposed to remain with the investors.

GFX's trading platform is run by Saxo bank, a Danish bank specialising in providing currency speculation services for retail clients across Europe. According to a Saxo bank spokesman, GFX Capital were an "institutional partner". Saxo and GFX clients may prove to be big losers in the affair and Saxo's lawyers are said to be looking into the case as a matter of urgency.

Following his arrest Freeman was said to be in fear for his life [BBC]. The trader had reason to be fearful. The anger amongst his clients was building and his house [above left] was vandalised with obscene graffiti and white paint daubed over the walls and windows. Police said they were concerned but did not increase security around the former trader [The Times / Daily Telegraph].

The alleged fraud was estimated to be in excess of £40 million [$62 million]. Dubbed a 'mini-Madoff', Terry Freeman disappeared from his home on the outskirts of London after rumours and reports spread about his arrest. Speculation grew on Internet forums as to where the trader had gone. Some suggested he may have fled to an apartment in Cyprus [above right], said to be owned by Freeman.

Described as a "luxury resort apartment" close to the beach and town centre, according to a property rental site Owners Direct. The apartment boasted a large living area, a balcony with sea views and access to a communal pool area, as well as being only a 5 minute walk to Paphos beaches and World Heritage Sites. The webpage was removed soon after Freeman's arrest.

It was later revealed that Freeman had changed his name and continued trading despite being a disqualified director. In mid-February, a week after his arrest, the Financial Times said Freeman had changed his name from Terry Sparks and that he had been authorised to act as a director by the Financial Services Authority more than two years ago. This in spite of being barred from taking such a role in companies until 2012.

The revelation has gathered investors together with many now seeking compensation from the FSA [Times]. The multimillion-pound compensation claim was the latest in a series of problems facing the regulatory body. In previous months they had been accused of being negligent in its monitoring of Northern Rock, the financial institution which ran into trouble in 2008.

Meanwhile Terry Freeman continued to protest his innocence. In a letter to his clients Freeman talked about how he had been continually libelled and slandered. "My right to a fair trial is constantly being compromised," Freeman said. He also talked about how he had been living in fear. "My life and those of my family have been threatened continually, to the extent that I am effectively being forced to live a hand to mouth existence, under constant and real threat, unable to return to our home address," Terry Freeman said.

He insisted that he had not absconded and would defend himself vigorously in court. "I have not 'disappeared' and I am not living in a villa in the Cayman Islands," Freeman told his investors. "The reported 'losses' are obscenely exaggerated...and I expect to contest any allegations and charges and to be completely vindicated."

But this week, Terry Freeman pleaded guilty at Southwark Crown Court to the swindling of millions from his investors. Instead of high returns promised by Freeman, his clients lost thousands of pounds. Amongst his victims were police officers, Premiership footballers and the Colin Montgomerie's ex-wife Eimear Montgomerie, who won an £8 million [$12 million] divorce settlement from the golfer.

Freeman spent the money on holiday homes in France and Cyprus, luxury holidays, high-performance cars and first-class flights around the world. But many of his victims have yet to come forward. Described as the British Bernie Madoff after the disgraced Wall Street financier who ran the largest-ever $65 million [£41 million] Ponzi fraud in the US, police believe that Freeman may have stolen as much as £23 million [$36 million]. However only 335 of his 700 victims have come forward. Those that have are said to be seeking compensation from the FSA for failing to stop Freeman in his tracks. As for Freeman, he will likely face jail when sentenced next month [Daily Mail / Evening Standard / Guardian / Independent / Epping Forest Guardian / CNBC / Daily Telegraph]

tvnewswatch, Beijing, China

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