Lessons to be learned as Indie bosses found guilty
There were calls this week for financial services regulation to be toughened up after Michael Bright, the former boss of Independent Insurance, and two former directors. were found guilty of covering up one of the UK’s worst financial disasters
Bright, 63, and Independent’s former finance director Dennis Lomas,56, were found guilty of two counts of conspiracy to defraud at Southwark Crown.
Philip Condon, 48, the former deputy managing director, was convicted of one conspiracy to defraud charge and cleared of another.
The three were remanded in custody ahead of sentencing on Wednesday, after Insurance Times went to press. Jurors had spent more than 40 hours, over nine days, considering the evidence.
Jonathan Chidwick, a partner with Stephensons law firm, said there were significant lessons to be learned from the case.
He said: “A prosecution of this magnitude undoubtedly calls for a closer look at how insurance companies are regulated. Perhaps it needs to be reviewed and changes made because clearly something has gone wrong.”
Andrew Paddick, director general of the Institute of Insurance Brokers, said the FSA had failed to uncover what was going on at Independent.
“The problem with the regulators and ratings agencies was that they didn’t uncover what was going on.
“It’s very typical of the FSA. The FSA doesn’t regulate. It is just a bureau-cracy that turns out bits of paper. It needs to be much more proactive in its day to day operations.”
The jury heard that the Bright, Condon and Lomas had conspired to defraud fellow directors, financial advisers and investors about the company’s ailing health, in order to protect their reputations, jobs and salaries.
The company’s accounts for the year 2000 should have shown a loss of £180m rather than a £22m profit.
The court heard that Independent had been making losses for three years.
When Independent Insurance went into provisional liquidation in June 2001, it was found to have insufficient funds to meet incoming claims from policyholders. The shortfall was estimated at between £110m and £250m.
John Ahern, a partner with DLA Piper law firm, said regulation has come a long way since the emergence of the Independent Insurance trial, particularly because lessons had been learned from landmark corporate cases across the Atlantic, such as Enron.
“A prosecution of this magnitude undoubtedly calls for a closer look at how insurance companies are regulated
Jonathan Chidwick, Stephensons
Ahern cited new disclosure rules, listing rules requirements, the Financial Services and Market Act and the Companies Act as positive strides in creating a well-balanced regulatory framework.
He said: “There have been a huge number of steps that place an enormous onus of obligation on directors today that would make it difficult for another Independent to happen.”
An FSA spokesman said the regulator was involved, along with the Serious Fraud Office, from an early stage and had concluded its own investigation into the case but has been waiting for the outcome of the criminal proceedings to release its own conclusions.
The investigation looked into where Independent breached the FSA’s rules and regulations. The FSA would not yet comment on the findings.
The first charge Bright, Condon and Lomas were found guilty of related to dishonestly withholding claims data from Independent’s actuary, Watson Wyatt, between 1998 and 2001.
It involved keeping claims information on “whiteboards” and not entering them onto the main system.
The second charge of which Bright and Lomas were convicted related to the dishonest non-disclosure of reinsurance contracts between 2000 and 2001. This concerned disclosing “good” contracts and concealing “bad” ones.
Jurors were told the three suppressed a damning internal report which highlighted major concerns a year before the company went under.
Bright, Condon and Lomas insisted they had only ever done their job openly, honestly and to the best of their abilities.
Bright earned a salary of £1.65m, Condon took home £925,000, while Lomas earned £309,000.
The collapse of Independent Insurance represented one the worst commercial disasters seen in the UK, leaving debts of hundreds of millions of pounds and thousands of individuals and some high street companies with no cover.
A total of 1,000 workers lost their jobs with some losing savings that had been invested in a company scheme.
The Financial Services Compensation Scheme paid out more than £350m in settlement of claims made by customers against Independent’s policies.
The Serious Fraud Office began investigating the collapse in June 2001 with the City of London Police. It was one of the SFO’s most complex and expensive investigations.