rogue trader

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If nobody has bought the film rights, then somebody should. The story of the corrupt stock trader Peter Kyriacou,  a Mayfair art dealer called Matthew Green, and Beaufort Securities, makes fascinating reading.

For eighteen months before its demise, Beaufort Securities had been struggling. The FCA began its investigation of the firm in 2017 and had placed restrictions on its trading practices, then, in March 2018, declared the company to be insolvent. They appointed PwC as the administrator, and all 80 or so employees were let go.

While that in itself was terrible news for all concerned, there was still more to come, in fact, much more. The whole story involves an FBI investigation that had uncovered a multi-billion dollar international fraud. The FBI had been planning to bring charges against the business just before it went into liquidation

The FBI had set up a sting operation to trap Beaufort. Posing as a wealthy investor based in the US, an FBI agent phoned the company claiming he wanted to disguise his ownership of various penny stocks. The initial call was taken by Peter Kyriacou, at that time a junior broker. While we don’t have details of what eventually transpired, the FBI claimed that Kyriacou and another Beaufort employee, Vinesh Canaye, an investment manager based in Mauritius, disguised the stocks’ ownership by setting up various companies.

Having achieved that, he then set about inflating the price of the stocks by placing various simultaneous buy and sell orders; in other words, pumping and dumping the stock to create the illusion of liquidity. The scam was far-reaching and involved a network of brokers in the Caribbean, Mauritius and Budapest.

The Art of the Scam

However, it gets even more complex. Matthew Green was a director of Mayfair Fine Art, a company that specialised in buying and selling paintings. To hide the money generated from the Kyriacou’s scam, it was alleged that Matthew Green had planned to use the sale of an expensive Picasso painting. By purchasing the painting and selling it back, he would effectively launder the proceeds of the scam. The painting “Personnages” at the time was valued at £6.7 million.

The sale never went through, as just days before the purchase payment for the Picasso was due, the FBI swooped and arrested Vinesh Canaye in the US. He pleaded not guilty. Neither Matthew Green nor Peter Kyriacou has yet been arrested, and there doesn’t appear to be an extradition warrant for them.

To give the FBI additional time to complete its investigations, the FCA held back its actions against Beaufort Securities. However, this did nothing to calm investors’ nerves as PwC were for some time unable to reclaim investors’ funds which amounted to £850 million. As Beaufort had very little cash left, and administration charges had exceeded £100 million, it seemed likely that investors might have to cover administration costs, even though their funds were considered to be ring-fenced and thus safe. Furthermore, as the Financial Services Compensation Scheme (FSCS) was still embryonic, there was no guarantee that investors would be covered for their losses.

However, after various wheelings and dealings, an agreement was forged whereby the FSCS would compensate some investors beyond their usual limit and cover all but 10% of the administration costs.

Court proceedings

The FBI charged six individuals and corporate defendants, including Peter Kyriacou, his uncle Aristos Aristodemou, Adrian Baron and Matthew Green. Arvinsingh Canaye and Adrian Baron pleaded guilty. Peter Kyriacou faces ten years imprisonment if found guilty, while Matthew Green is yet to plead. It seems he is living in Spain after his art dealership in London was declared bankrupt. There are arrest warrants on him in the US, UK, Hungary, Saint Vincent and the Grenadines, and Mauritius. He may still have the Picasso, which the courts have ordered him to surrender.

Pumping and dumping

Pumping and dumping put the real “Wolf of Wall Street” Jordan Belfort (played by Leonardo DiCaprio in the movie) in prison. As in the Beaufort scam, it usually involves penny stocks. The aim is to inflate (“pump”) trading volumes and prices before the scammer sells “dumps” the stock at highly inflated prices.

The US inditement accused the defendants of three forms of price manipulation: “wash trades” where share purchases (from broker A) and sales (to broker B) match each other in price, volume and timing to increase apparent trading volumes; match trades which are similar but involve a third party; and price ramping by pumping and dumping.

 

 

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