Sunday, 17 July 2011


Fladgate faces potential £10m payout as Izodia gets around to negligence action
11 August 2008

Nina Goswami
Fladgate may have to pay out in excess of £10m in damages if the negligence action brought against the firm by former dotcom company Izodia is successful.

As reported on The (4 August), the West End firm is being sued over the actions of a Fladgate partner that led to Izodia director Dr Gerald Smith stealing £33m from the ­dotcom business and transferring it to Jersey company Orb.

Jones ;Day ;litigation ­partner Craig Shuttleworth, who is leading Izodia’s legal team, said the claim only related to £7.8m of the ­missing millions.
“Izodia has managed to get £23m of the money back already through litigation with the Royal Bank of ­Scotland [RBS] in Jersey, so this claim is just in ­relation to the £7.8m deposited in the Bank of Scotland in Reading,” explained Shuttleworth. “The reason the amount we’re seeking is higher than the £7.8m is that it also includes interest, bringing the figure to around £10m.”

In the claim, which was filed on 1 August, Fladgate has been named as the first defendant, while its corporate secretarial arm Walgate Services has been identified as the second defendant.

The claim alleges that the firm’s former corporate head Nicholas Greenstone, deeming himself to have the power of a company secretary through Walgate, “signed a forged and fraudulent minute purporting to record a board meeting of Izodia”. The meeting did not take place and Greenstone did not have the authority to sign the papers that allowed Izodia’s money to be transferred in a fraudulent manner.

The ;claim ;goes ;on: ­“Moreover, ;after ;the first stage of fraudulent ­misappropriations had taken place, Fladgate took a series of steps to conceal that misconduct from Izodia which ;included ;[...] ­deliberately misleading an independent ;advisor appointed by Izodia.”

Along with Greenstone, former Fladgate partner Simon Pithers is identified in the claim form as one of the lawyers to have acted ­unlawfully against Izodia. In addition, Paul Leese and Andrew McKenzie, both of whom are still partners at Fladgate, are said to have contributed to the breach
of duty.

Shuttleworth said the lawyers have been added to the claim only as a “safety valve”.

“We’ve named the partners for thoroughness,” said ­Shuttleworth. “It’s not a ­likely situation, but Fladgate could decide to disown the ­partners, so then we’d need to go after the partners that are liable on an individual basis.”
Although the multi-million-pound fraud took place in 2002, Izodia was only able to launch proceedings against Fladgate six years later as it needed the cash recovered in Jersey to fund the action.

“Initially Izodia had to pick and choose who it went after so it had to be Smith first, then RBS in Jersey. After RBS Izodia had the funds to go up against
the balance of people,” explained Shuttleworth. “Fladgate is basically the final wave of the large claims.”

Fladgate, which is being represented by Reynolds Porter ;Chamberlain ­
partner Nick Bird, declined to comment.

The news of the action came as The Lawyer revealed (4 August) that Greenstone had been reprimanded by the Solicitors Regulation Authority (SRA) for his actions that led to the fraud.

Greenstone, who left Fladgate in 2003 and who now works for Merchant Capital, was admonished for his conduct, which was not fraudulent but which allowed others to implement a multimillion-pound deception.

While ;at ;Fladgate Greenstone acted for Jersey company Orb, which was being investigated by the Serious Fraud Office after millions went missing from Izodia. The cash had allegedly been transferred to Orb subsidiaries.
Prior to this Greenstone signed a document that led to Smith ­transferring money fraudulently from the ­dotcom to Orb.

The SRA adjudicator John Lymbury held that: “Quite apart from any other factor, Mr Greenstone to have handed an undated document and place himself in the hands of anyone who may have had a dishonest intent was an act which not only impairs proper standard of work, but also brings Mr Greenstone’s reputation into questions and/or that of the profession generally.”

The case was referred to Legal Services Ombudsman Zahida Manzoor after a shareholder felt that the SRA did not go far enough. Manzoor did not believe ­further action should be taken.

However, Manzoor said: “In my view the evidence before the SRA suggested that, despite his 30-plus years in the profession as a corporate lawyer, Mr ­Greenstone was guilty of an extremely naive error of judgement and an act of foolishness in trusting his associate Mr Smith with a signed document to do with whatever he wanted.”

Fresh blow for Orb as Thistle sale turns sourSecretive Jersey-based company may recoup less than it paid for hotel group

Share reddit this Jamie Doward, deputy business editor The Observer, Sunday 27 April 2003 Article historyAttempts by Orb Estates, the secretive company at the centre of a Serious Fraud Office investigation, to sell 37 Thistle hotels to Newcastle tycoon Allan Rankin for£750 million, have come unstuck.

The Jersey-based firm has been trying to dispose of the hotels to Rankin for weeks in an attempt to pay off creditors. Rankin, a close business associate of Jon Pither, a 'serial' director and former adviser to Orb, said the deal was 'a dream come true'.

But sources familiar with the situation say Rankin is no longer in the running, leaving the way open for two other parties. An announcement on the eventual winner is expected within the next two weeks. The company leading the pack is said to be a financial bidder that has so far not been linked with the deal.

News that Rankin has failed to acquire the Thistle hotels portfolio could be a serious blow for Orb. The company needs to pay off outraged investors in bombed-out dotcom firm Izodia, in which Orb owns a 29 per cent stake. Shortly after acquiring the stake, £33m of the firm's cash was transferred into an account belonging to an Orb subsidiary, a move that prompted the SFO to investigate. The company also owes a number of banks more than £30m and the Thistle hotel group around £15m.

Although Rankin pledged to buy the hotel portfolio for £750m it is not clear how he would raise the cash. Sources say advisers for Rankin had started sounding out interested parties to buy chunks of the hotel group within weeks of him buying the assets.

His removal from the bidding war leaves open the prospect that the eventual buyer may end up acquiring the hotel assets for significantly less than the £600m Orb paid for them last year.

The hotel sale is being masterminded by Morgan Stanley. The bank is attempting to ensure that all parties are satisfied with the outcome and has presided over a complex series of discussions to produce a settlement.

One party keenly involved in the negotiations is Laxey Partners, which holds a sizeable stake in Izodia, has a rep resentative on its board, and has been vigorously pressing Orb to return the missing millions. However, in a move that once again highlights the Byzantine complexity of Orb's network of business dealings, it appears that the Jersey company has been involved in transactions with Laxey in the past.

In April 2002, Laxey sold a 17 per cent stake in Izodia to MU Nominees, a company that had bought a sizeable interest in another Orb investment, Atlantic Caspian Resources in 2000. MU Nominees bought the Atlantic Caspian stake on behalf of Jersey Asian Venture Fund ILP - a joint venture with Orb's parent company Lynch Talbot. The revelation will once again draw attention to the strange links between Orb and Izodia.

Last year, Pither stood down as Izodia chairman Pither following advice from the Takeover Panel. Investors had expressed concerns that, as a former director and close business associate of Abingdon Capital, Orb's main financial adviser, Pither was open to a conflict of interest claim.

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1 comment:

Zoompad said...

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