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Jeremy Stone and Jeremy Stone Consultants v National Westminster Bank plc and Paul Alpin

Posted on 11/02/2013 · Posted in Expert Witness, Financial Litigation, Fraud

Case involving liability by a bank operating accounts for a customer which turned out to be a Ponzi scheme.

Jeremy Stone, a former portfolio manager at Marble Bar Asset Management LLP, sued NatWest and an employee, Paul Aplin, seeking £26 million damages.

The former hedge fund manager, who by early 2009 had amassed considerable personal wealth by the sale of the hedge fund investment company decided to invest some £20m in a new business area. He was persuaded to invest in an Essex-based electrical company, operated by a Mr Saunders, an old family friend. Saunders Electrical Wholesale Ltd (‘SEWL’) purported to supply large quantities of electrical goods and related services to reputable hotel groups including Hilton Hotels, Holiday Inn, Park Plaza etc. It appeared to be a profitable investment opportunity and the claimant company (established to manage Mr Stone’s investments and personal wealth and managed by his father and sister) proceeded to invest. Further investments were later made by friends and acquaintances of the Stone family upon which Jeremy Stone gave personal guarantees.

Unbeknown to them, the new business venture and SEWL was a vehicle for a fraudulent Ponzi scheme. Money paid in to the company account was thought to be being used for the purchase of the equipment for supply to the hotels. Large sums of money were periodically withdrawn by Mr Saunders and an associate for their own benefit and no electrical equipment was purchased.

The Defendants were (1) NatWest Bank which operated certain accounts for the SEWL and (2) Paul Aplin who was employed by NatWest as relationship manager for a number of customers, including SEWL. The return of monies was sought on the basis that the Defendants were negligent for not spotting fraudulent activity and preventing it from occurring and so causing the loss to Mr Stone.

Mr Justice Sales stated that “This is a case in which the Court’s assessment of the witnesses and of the evidence they gave is of critical importance.” : Aplin was an honest man who had acted in good faith, had good reason to believe Saunders was running a legitimate business and ‘did not shut his eyes to the truth’. He was relationship manager for SEWL (owing them a duty of confidentiality), not the Claimants, and indeed thought they had far more information about the business than he did as a result of their own investigations. The Bank had used automated systems to detect fraud and the Judge did not fault them for this.

The Court dismissed all 5 of the Claimants’ pleas. The Serious Fraud Office continues to investigate SEWL.

Link: Jeremy Stone and Jeremy Stone Consultants v National Westminster Bank plc and Paul Aplin [2013] EWHC 208 (Ch)

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