Court of Appeal judgment reduces criminal’s jail term by six months
Lombard, the UK leasing subsidiary of Royal Bank of Scotland, was severely ripped off in a case that sets a legal precedent in English law for the sentencing of fraudsters.
Two fraudsters involved in the scam, which included the sourcing of finance from Lombard for assets that had already been financed by a third party, were jailed several months ago.
In May, the Court of Appeal reduced the jail term for one of the criminals by six months because of a legal technicality.
Web of deception
In the scam, fraudsters Gary Hibberd and Timothy Allen, who ran Vodka Bar Management Ltd (VBM) and associated companies, which operated upmarket bar venues under the name of Babushka, obtained a £1.3 million (€1.5 million) loan facility from RBS.
A forged letter, purportedly from an accountancy firm, was used to back personal guarantees for the loan by VBM’s directors. This asserted that they had combined assets of £3.9 million, including several freehold properties that did not, in fact, exist.
A separate asset finance fraud against Lombard followed a joint venture entered into by VBM with a major pub company chain, Laurel Pub Company (LPC).
This “pubco” wanted VBM to take over management of some of its sites and for it to be re-branded as Babushka bars. LPC retained freehold ownership and funded refurbishments.
The VBM directors, however, obtained HP finance from Lombard for decorations, furniture, IT machinery and bar equipment in these JV premises.
They falsely presented invoices as being payable by Lombard on VBM’s account, when, in fact, LPC funded the bar fixtures and retained title. Lombard’s lien on the assets was, therefore, worthless.
Related deceptions included the forging of documents purportedly from LPC, stating knowledge of the Lombard deal and guaranteeing the repayments.
Scam begins to unravel
VBM started defaulting during 2003. In January 2004 LPC repossessed the JV sites, and VBM collapsed soon afterwards.
The financiers’ losses totalled £1.6 million for RBS and a further £450,000 for Lombard.
The personal proceeds of the fraud were mainly within the salaries drawn by the fraudsters from VBM. During the fraudulent trading period, Hibberd, as managing director, took an annual salary of £250,000.
He also had the personal use of a Bentley Azure car, valued at £136,000, on finance from Lombard.
RBS made a report to the police in August 2004. Charges of conspiracy to defraud were eventually brought in 2007.
Admitting to fraud
The fraudsters had denied the allegations while under investigation. However, they finally pleaded guilty on the day of the trial at Southwark Crown Court in September 2008. Hibberd was jailed for six years and Allen for three-and-a-half years.
Each sentence included two consecutive elements for the respective frauds against RBS and Lombard.
In the recent Court of Appeal hearing, the defence argued that this consecutive sentencing was wrong, given the close relationship between the two financiers. The appeal judges held that, in such connected circumstances, the statutory maximum sentence of 10 years could not have been increased through consecutive sentencing.
Yet this did not affect their view of the actual sentences.
The fact of the two compounded frauds was still held to be an aggravating feature and grounds for consecutive sentences within the unexpanded maximum.
In Hibberd’s case, it was held that the trial judge had been wrong in citing certain aggravating features. These included a finding that he had “corrupted” his junior partner, Allen.
Having therefore agreed to review Hibberd’s sentence, the appeal judges cut it from six to five-and-a-half years.
After examining some precedents, they held that his “starting point” should have been six years, with six months deducted for the late guilty plea. Allen’s sentence was upheld.
Before the frauds, the defendants had been involved in a series of similar ventures under the same trading name of Babushka. These, too, had become insolvent, causing loss to creditors.
The trial judge treated this as an aggravating feature. Significantly, the appeal judges rejected a defence submission that this had been wrong.
“Particularly for Hibberd, the fact that he had run companies which had collapsed and risen ‘Phoenix-like’ from the ashes on more than one occasion, put him in a different category from a person with no such history,” said Lord Justice Hooper.
Commenting on the outcome, a Lombard representative said “We welcome the Appeal Court’s decision. It demonstrates that effective prosecutions will follow fraudulent activity.”