January 17, 2013 / 1:22 PM / 5 years ago

Judge slams banks defrauded by fake tycoon

LONDON (Reuters) - A British judge sentenced a fake property tycoon to seven years in jail on Thursday for defrauding two banks out of over 700 million pounds ($1.1 billion), but said the banks deserved some blame for poor risk controls.

“The two banks, Allied Irish Banks and Bank of Scotland, have undoubtedly acted carelessly and imprudently by failing to make full enquiries before advancing the money,” said judge Andrew Goymer as he sentenced Achilleas Kallakis, 44.

Kallakis was convicted by a jury at London’s Southwark Crown Court on Wednesday of two counts of conspiracy to defraud, in one of Britain’s biggest-ever property scams.

Co-defendant Alexander Williams, 44, was convicted of the same counts for his role in producing forged documents to back up Kallakis’s applications for loans. Judge Goymer sentenced him to five years in jail.

“Both defendants took full advantage of the prevailing banking culture in which corners were cut and checks on applications were superficial and cursory,” the judge said.

The case stems from a series of loans worth a total of 740 million pounds secured by the fraudsters from Allied Irish Banks Plc between 2003 and 2008.

Lax paperwork and weak background checks were hallmarks of Irish banking before the country’s property bubble burst in 2008. Banks competed with each other to attract real-estate developers and often relied on personal guarantees to lend them individual loans running to hundreds of millions of euros.

The property binge precipitated Ireland’s financial crisis and eventual EU-IMF bailout.

The conviction of Kallakis and Williams is a success for Britain’s cash-strapped Serious Fraud Office (SFO), which was widely criticised last year for a botched investigation into the dealings of property barons Vincent and Robert Tchenguiz.

In another SFO victory on Thursday that had echoes of the Kallakis case, the director of a sub-prime loan company was sentenced in his absence to 7-1/2 years in jail for defrauding creditors including Barclays Plc to the tune of 100 million pounds.

The SFO said in a statement that Waheed Luqman, who fled Britain in 2011 after he was charged and is believed to be in Pakistan, was a director of Lexi Holdings, a property finance company that went into administration in 2006 with debts of over 100 million pounds.

He conspired with other members of his family to defraud creditors of the company, including Barclays which was its main lender, between 2000 and 2006, the SFO said.

“The Lexi accounts were doctored to create a false picture of the company’s profitability and creditworthiness. Money was drained out of the company to family members in Pakistan,” the SFO said.


A spokesman for Bank of Scotland, now part of Lloyds Banking Group Plc described the crime as “a sophisticated fraud committed by determined individuals” and said the bank had uncovered the fraud itself and had assisted the SFO.

At Allied Irish, a spokeswoman declined to comment on the judge’s remarks.

During a four-month trial, the jury heard that Kallakis had used the funds he obtained to build up a portfolio of 16 properties and to pay for his fleet of chauffeur-driven Bentleys, a private plane and helicopter and luxury yacht moored in Monaco.

The second count was related to a separate loan worth 29 million euros obtained between 2007 and 2008 from Bank of Scotland to convert a ferry into a super-yacht.

The loan was approved but only 5.7 million euros had been paid out when suspicions were raised.

The judge said the defendants had gambled and lost on the London property market, hoping that the fake guarantees they offered the banks would never be called in because the market “would go on expanding towards infinity”.

“While I do not equate the position of the banks with that of a householder or car owner who forgets to secure his house or car and becomes the victim of burglary or theft, they do bear some responsibility for what happened,” said Goymer.

The judge noted that Bank of Scotland had been warned by its lawyers about the risks of accepting a particular letter of assurance from a Swiss lawyer backing up Kallakis’s application for a loan.

“It almost beggars belief that senior management chose to disregard that warning in its rush to complete the deal at all costs,” he said.

Additional reporting by Carmel Crimmins and Padraic Halpin in Dublin; Editing by Andrea Ricci

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