Was the FSA misled and did certain parties fail to give vital information to the FSA?

Posted on June 24, 2013

We have pointed out that Tiuta’s regular financial returns to the FCA must have been grossly misleading. The books were cooked. It looks like the FSA was misled over a considerable period as to Tiuta’s true financial position.

George Patellis called in BDO to advise Tiuta plc in January 2011 because he discovered it was insolvent and because he discovered the DS1 fraud (explained in previous blogs) and concluded that the Fund’s money had been misappropriated by Tiuta.

We have reason to believe the FCA may be coming to the view that Tiuta and certain professional counterparties may have been ‘economical with the truth’. As it happens, BDO is FCA regulated.

We offer our help to the FCA by setting out questions for BDO:

When BDO was engaged by George Patellis to investigate the fraudulent loans, what evidence were they given by him about the DS1 fraud and what did they uncover?

When BDO found out about the fictitious loans at the heart of the DS1 fraud, what did they do?

Why did BDO accept a highly restricted remit that involved taking figures from the directors at face value if they were on notice of fraud?

We assume that BDO advised the directors of Tiuta in February 2011 that Tiuta was insolvent. Why would it accept a role in handing monthly financial updates to the FSA on behalf of Tiuta if it had been told by George Patellis about the DS1 fraud?

Surely it would think that the information about the solvency of Tiuta was tainted and/or needed to be validated and that it should make its concerns known to the FSA?

Is there a possibility that the FSA might have been given the wrong impression, possibly by fraudsters at Tiuta, that BDO had validated the monthly updates?

Did BDO make its role clear to the FSA to avoid a false impression that the figures being provided to the FSA had been independently verified by BDO?

Did BDO check whether the recovery plan at Tiuta had actually been implemented?

Did BDO pass any comments to the FCA about the likelihood of the recovery plan ever succeeding?

Was there in fact a growing mismatch between the figures provided to the FSA and the true position of an ever deeper insolvency?

When the Fund finally collapsed, did BDO tell the FSA the truth about the fraudulent loans? If not, why not? It knew that it had been given prima facie evidence of fictitious loans by George Patellis in early 2011.

Steve Nicholas alleges that BDO entered a deal to share fees in connection with its appointment as administrator. Was there a secret deal to pay “introducers” of BDO to this rich seam of work?

An external observer might look at the entire sequence of events here and wonder whether BDO involvement was as ‘innocent’ as it initially appears.

We offer our help to the FCA with some questions for Capita:

When did Capita find out that unauthorised loans were being made outside the terms of the Investment Memorandum “IM”?

When did Capita find out that loans were being extended outside the terms of the IM?

When did Capita realize that the IM contained blatant lies, specifically the operating history of Tiuta Plc?

When did Capita realise that Mazars had been appointed to audit the Fund?

What were Capita’s concerns about Nigel Walter?

Did Capita worry that he may be dishonest due to his involvement with a major land banking scam which the FSA had put into administration in 2008?

Why did Capita require Connaught to remove Nigel Walter from the IM, but allow him to remain as an “adviser” to Connaught?

What due diligence did Capita undertake to verify that all the statements in the original IM were indeed accurate (as any person approving a financial promotion under section 21 of the Financial Services and Markets Act is required to do)?

Why did Capita decide to resign as Operator to the Fund? Why didn’t Capita suspend the Fund in view of its serious concerns?

Why did Capita ignore it responsibilities under Principle 11 to report evidence of fraud to the FSA?

It is up to the FCA to ensure that the regulator can never be so easily misled, by uncovering the truth, and make sure that those who deliberately concealed information from it (through the with-holding of material information) compensate investors.

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