Charles | Fraudulent trading – Serious Fraud Office prosecution

The case & proceedings.

Charles had a brilliant business idea and, in 2000, set up a company with two friends to exploit it – initially in the UK but also in Australia, Canada America and other countries.

The plan was to sell to the public for just over £100 computers worth £600, but in return retain a link with the customers so that they became virtually a captive market for the sale of other goods, such as cars and kitchen equipment, at discounted prices. Charles could buy the computers for £450 and, once he had sufficient customers, planned to agree bulk purchase deals enabling him to make significant profits on the subsequent sales of the cars and other goods while still offering a substantial discount on retail prices.

The case & proceedings.

Unfortunately startup funds were very limited and the computer manufacturers would give no credit to Charles’ new company. However, he considered that by taking payment in advance from customers and growing the business exponentially he would manage to supply each customer with a computer 8 weeks after receiving their payment (by using funds received from later customers to pay for the earlier customers’ computers).

Sadly the company ceased trading after 8 months when the Department of Trade and Industry intervened following complaints from the public. By this time approximately 18,000 customers had paid in advance for a computer but only just over 1,000 of these had actually received one. However, the company had been able to pay Charles £150,000 for the intellectual rights to his brilliant business idea and had met the costs of overseas business trips by Charles and his family in preparation for opening in foreign markets. Charles and his friends were arrested and charged with fraudulent trading.

The case & proceedings.

We were instructed by the defence to give an opinion on the viability of Charles’ brilliant business idea.

Charles and his friends had produced a business plan which showed an anticipated borrowing requirement of nearly £100 million. We formed the opinion that this business plan, and particularly the supporting cash flow projections, had not been competently prepared and would not have provided an appropriate basis upon which to enter into negotiations with a potential lender or investor. In the event the company had been unable to secure any significant funds either by way of borrowings or investments.

The case & proceedings.

Furthermore, the company not only required to find new customers and expand continuously to survive, but also it needed to expand at a particular rate of growth. Too slow an expansion would not bring in funds quickly enough to meet the costs of computers already required for existing customers, too rapid an expansion would accelerate the need to find yet more customers to fund the purchase of computers for which orders and payments were being taken.

We concluded that in our opinion these arrangements went well beyond the range of normal and acceptable business practices and risks.

In the event, Charles’ legal team decided not to rely upon our report and it was not used in evidence.

4 years imprisonment

Charles was later convicted of fraudulent trading and sentenced to four years imprisonment.

  • Read more cases

  • Get in touch