PERSONAL VIEW: Reflections on the successful prosecution of Tom Wilmot, UK boiler room king

By Guest Contributor
August 26, 2011

By Alex Davidson – the views expressed are his own.

LONDON, Aug. 26 (Thomson Reuters Accelus) – Earlier this week Tomas Wilmot was sentenced at Southwark Crown Court to nine years in jail for conspiracy to defraud investors out of 27.5 million pounds through boiler rooms. I took a particular interest in the case because I had once worked for a short period as a dealer at Harvard Securities, a licensed dealer in securities run by Wilmot in London in the late 1980s.  One of the most powerful bosses of speculative share dealing operations over some 25 years had finally been caught.

Harvard Securities had specialised in selling high-risk over-the-counter (OTC) stocks to trusting investors. The young dealers had worked at the job from within days of being recruited, and it took them some months to realise how it worked, by which time they mostly left.  Harvard collapsed in 1988 and the investors lost all or most of their money invested in the illiquid stocks that the dealers had recommended them.

The regulatory regime of the time licensed Harvard, but, despite that, there was always an issue about whether the stocks had been priced correctly, whether there was a genuine market in them, and what happened to the money that the investors sent in. The paperwork was full of inadequate warnings. Investors lost most of their money, most of the time, although there were a few highly publicised winners.

It seemed impossible, even for the dealers, to prove that anything untoward was going on and nobody did, at least in public. The firm worked using the mantras of stockbroking, that shares are inherently risky, that markets are volatile, conditions can change quickly, and you win some, lose some, and similar. On this basis, the firm kept going, fighting legal actions, finding new clients, pushing more and more of its stocks. Many of the new clients came from government privatisations such as British Gas and Rolls Royce. The most trusting of investors, lured by the attraction of commission-free dealing, transferred money from these solid stocks into OTC stocks that would, unfortunately, lose them most of it.

Dealers, like their clients, warmed to Wilmot. He had close links with the pub round the corner from Harvard and, on a good day’s trade, would throw it open to dealers for unlimited drinks. On the dealing room, for a joke, he would grab the fire extinguisher and chase dealers with it. When I passed the firm’s silly securities exam, he came over beaming to my desk and tossed a coin. When I called heads right, he murmured “Oh my God,” but handed over 200 pounds, as was customary. When I thanked him, he mumbled almost embarrassedly, “It’s all right.” The darker side was that he watched us at work from a spy camera in his office three floors up with a lens swivelling around the dealing room.

Many were reassured that firms such as Harvard Securities were working within the regulatory system and had business dealings with the broader City. I will not dwell here on the years that I spent providing clear evidence of how these firms operated to the regulators, politicians and the police, largely to no avail. The public outrage aroused by my book published in 1989, ‘The City Share Pushers’, was well documented, with a dedicated Channel 4 programme, and a serialisation in the biggest-selling newspaper of the day. The fact that my former boss has now been given a nine-year jail sentence, although not directly related to his activities that I covered in my book, seems some justice.

Some City firms have welcomed Wilmot’s former employees through their doors, benefiting from their ability to get in money fast from retail investors, including in recessionary times. Some of these people are now in senior positions but that is not to suggest they are fraudsters themselves.

It is possible to draw comparisons in this case with Bernard Madoff in the U.S., who was allowed to carry on undetected for years, when a whistleblower was trying hard to attract the attention of the Securities and Exchange Commission with well-documented suspicions of his gargantuan fraud.

Madoff is the only person to have been held responsible in a court of law but prosecutors are investigating others. In cases of major financial fraud, it can be tempting to fall into a blame game. The regulatory system that failed to catch Wilmot for 25 years could argue that he was operating in a way that was beyond its reach, to get evidence was hard, and that the system under-resourced, and turned its back on whistleblowers because it was busy attending to thousands of complaints, or performing administrative duties.

The case making, of course, goes both ways. Harvard Securities could, and did, argue that it was not found to be a fraudulent operation, and that it had links with highly respected firms, and that clients had been informed in writing that they were investing in high risk-securities.

I had joined Harvard Securities in September 1986 as a dealer, not knowing properly what a share even was. Seven months later, it was becoming clear that the huge earnings were blood money, and I left without notice. More than 25 years on, I remember how it had all seemed too good to be true, and nobody was stopping it.

Strategies change, and the regulated community is now starting to see the full implications of the Financial Services Authority’s determination to deliver a “credible deterrence” approach to enforcement. If some critics thought that the principles-based regime was ineffective and had too many loopholes, there is at least evolution. Even with all the problems and changes facing the authorities, the law of compensation has a long arm, and it seems to catch up with some of the worst offenders. First, it has got Madoff and now, in the UK, Wilmot. If it is too little, too late, it is surely a step in the right direction.

(Alex Davidson is a senior editor with the Compliance Complete service of Thomson Reuters Accelus, and this article originally appeared in it.  Compliance Complete (http://accelus.thomsonreuters.com/solut ions/regulatory-intelligence/compliance- complete/) provides a single source for regulatory news, analysis, rules and developments, with global coverage of more than 230 regulators and exchanges.)

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“The regulatory system that failed to catch Wilmot for 25 years could argue that he was operating in a way that was beyond its reach, to get evidence was hard….”

Really? The key evidence was found in 2007 only by accident, when the FSA was investigating a different offender and stumbled across Wilmot’s hidden computer hard drive. Though of course, not looking for evidence in the first place would indeed make it hard to find.

Meanwhile, my newspaper published warnings in 2004, 2005 and 2006. We named Wilmot and his two sons. And we spotted the links to Austria and Slovakia and explained them.

Did the phone ring, with an urgent request from the authorities for our evidence. Did it heck!

Tony Hetherington
Mail on Sunday

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