NatWest Three
Fraud Indictment Case
CLASSIFICATION: Financial Crime
LOCATION
Houston, Texas
TIME PERIOD
2002
VICTIMS
0 confirmed
In 2002, British businessmen Giles Darby, David Bermingham, and Gary Mulgrew, collectively known as the NatWest Three, were indicted in Houston, Texas, on seven counts of wire fraud related to their former employer, Greenwich NatWest, amid the Enron scandal. The incident occurred during their involvement with a Cayman Islands partnership, Swap Sub, which was created to manage Enron's investments. Following a protracted legal battle in the UK, the three were extradited to the United States in 2006 and subsequently pleaded guilty to one count of wire fraud on November 28, 2007, with other charges dropped. They were sentenced to 37 months in prison on February 22, 2008, initially serving time in the US before being repatriated to British prisons, from which they were released in August 2010. Significant evidence included their signed Statement of Facts detailing their realization of the value of NatWest's interest in Swap Sub and their involvement in misleading financial transactions that enriched certain Enron employees.
Public speculation centers on the extent of the NatWest Three's involvement in the Enron scandal, with some believing they acted as scapegoats for larger corporate malfeasance. There are theories that they may have been misled by Enron executives or that their actions were part of a broader scheme orchestrated by higher-ups at both Enron and Greenwich NatWest. Additionally, discussions persist regarding the fairness of their extradition and sentencing, suggesting that political and financial interests may have influenced the legal outcomes.
The NatWest Three: A Tale of Ambition, Deceit, and International Justice
The Players
Our story begins with three British businessmen: Giles Darby, David Bermingham, and Gary Mulgrew, collectively known as the NatWest Three. These men stood at the heart of a scandal that would stretch across the Atlantic, embroiled in the notorious Enron debacle. In 2002, the trio was indicted in Houston, Texas, on seven counts of wire fraud against their former employer, Greenwich NatWest. This indictment was part of the larger web of the Enron scandal, which had already rocked the financial world.
The Background
To understand the intricacies of this case, we must travel back to the year 2000. At that time, Darby, Bermingham, and Mulgrew were employed by Greenwich NatWest, a division of National Westminster Bank, which later became part of the Royal Bank of Scotland (RBS). Their involvement with the American energy giant Enron was through a Cayman Islands-registered partnership known as Swap Sub.
Swap Sub was the brainchild of Andrew Fastow, Enron's CFO, designed ostensibly to hedge Enron's investment in Rhythms NetConnections, an internet service provider. The entity's assets consisted of cash and Enron stock, while its liability was an option for Enron to sell its entire investment in Rhythms at a predetermined price in 2004. NatWest and Credit Suisse First Boston both held stakes in Swap Sub, with the remainder owned by a partnership managed by Fastow.
In March 2000, Enron decided to terminate its hedging arrangement with Swap Sub. Fastow orchestrated a $30 million payment to recover the Enron stock Swap Sub held, despite Swap Sub owing Enron due to a decline in Rhythms' stock price. Of this payment, $10 million went to Credit Suisse First Boston, and Fastow falsely informed Enron that the remaining $20 million would go to NatWest. However, NatWest only received $1 million, enriching several Enron employees who had interests in Swap Sub.
The Crime
The pivotal moment occurred in early 2000 when the three bankers realized the potential value of NatWest's interest in Swap Sub due to rising stock prices. On February 22, they presented a proposal to Fastow aimed at capturing this value, which Fastow ultimately rejected. Yet, shortly thereafter, Fastow approached Mulgrew with an offer to purchase NatWest's stake in Swap Sub, along with an "unspecified financial opportunity" if Mulgrew left NatWest. Mulgrew shared this with Darby and Bermingham.
By March 6, Fastow's assistant, Michael Kopper, formally proposed that a company he controlled would purchase NatWest's interest for $1 million. The three bankers recommended that NatWest accept the offer. They later discovered that the "financial opportunity" involved acquiring a portion of NatWest's stake in Swap Sub for themselves. Kopper facilitated a deal for them to acquire a put option on half of NatWest’s former stake in the company. By March 17, Darby had gathered the necessary signatures to finalize the sale, and by March 20, the three executed the option agreement with Kopper.
The trio kept their dealings with Fastow and Kopper secret from NatWest and concealed their newfound financial interest in Swap Sub. By April 21, Bermingham had resigned from NatWest and exercised the options, yielding a profit of over $7 million, which was split among the three.
The Investigation
The legal storm began brewing in November 2001 when the three, now working at Royal Bank of Canada, learned of an SEC investigation into Fastow. They voluntarily approached the British Financial Services Authority (FSA) to discuss the deal, claiming transparency. Bermingham later insisted, "We gave [the FSA] everything because we thought we had nothing to hide."
The FSA completed its inquiry in February 2002 without taking action but forwarded its findings to the SEC, which passed them to the US Department of Justice. The FSA's report detailed potential conflicts of interest, suggesting evidence of the trio's wrongdoing.
The Extradition Battle
In June 2002, US arrest warrants were issued, and by September, a Houston grand jury indicted the three on seven counts of wire fraud. These charges corresponded to documents transmitted electronically in furtherance of the fraud. Although Enron officials were involved, the indictment did not directly link the trio's actions to Enron's collapse.
US prosecutors began extradition proceedings in 2002, but it wasn't until April 23, 2004, that the trio was arrested in Britain, sparking widespread controversy. A magistrate ruled in September 2004 that extradition could proceed. The three sued the Serious Fraud Office (SFO) to force a UK prosecution, but the SFO deferred to US authorities, citing stronger jurisdictional claims.
After a lengthy legal struggle, Home Secretary Charles Clarke endorsed the extradition in May 2005. The trio's appeals failed at every level, including the European Court of Human Rights.
The US Legal Proceedings
Exhausted of options, the NatWest Three arrived in Houston on July 13, 2006, spending a single night in the Federal Detention Center before being released under strict conditions. They faced mounting legal fees and were restricted to the Houston area, unable to meet freely or seek employment beyond the city.
Trial dates were postponed multiple times, initially set for February 2007, then September 2007, and finally January 2008. The delays exacerbated their hardships, separating them from families and burdening them with legal costs.
The case saw further complications when the three sought video testimony from British colleagues, claiming that some feared US government retaliation. They alleged obstruction from RBS and RBC, which hindered their defense efforts.
The Plea Bargain
On November 28, 2007, the NatWest Three accepted a plea bargain, pleading guilty to one count of wire fraud related to the electronic transmission of Swap Sub sale documents. In return, six counts were dropped, and US prosecutors supported their request to serve part of their sentences in the UK.
Prosecutor Alice Fisher stated that the three admitted to defrauding NatWest through a secret deal with Enron officers, profiting personally at their employer's expense. However, some British commentators speculated that the guilty pleas were motivated by the threat of lengthy sentences and prolonged legal ordeals rather than actual guilt.
The Sentencing and Aftermath
On February 22, 2008, the three were sentenced to 37 months in prison. Initially incarcerated in the US, they were later transferred to British prisons to complete their sentences. By August 2010, the NatWest Three were released from custody.
The saga of the NatWest Three stands as a cautionary tale of corporate ambition, deceit, and the complexities of international justice. It highlights the far-reaching implications of corporate scandals and the struggle for transparency in the financial world.
Sources
For further information, please visit the Wikipedia article on the NatWest Three.
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Initial Proposal to Enron
NatWest bankers present a proposal to Enron CFO Andrew Fastow to capture value from Swap Sub.
Option Agreement Executed
The NatWest Three execute an option agreement with Fastow's assistant to acquire a stake in Swap Sub.
FSA Investigation Begins
The NatWest Three voluntarily meet with the British Financial Services Authority regarding the SEC investigation.
Indictment Issued
The NatWest Three are indicted on seven counts of wire fraud by a grand jury in Houston.
Arrest in UK
The NatWest Three are arrested in Britain as part of the extradition process to the US.
Extradition to US
The NatWest Three arrive in Houston after exhausting all legal avenues against extradition.
Plea Bargain Accepted
The NatWest Three plead guilty to one count of wire fraud in exchange for dropping other charges.
Sentencing
The NatWest Three are sentenced to 37 months in prison and ordered to repay $7.3 million.
Release from Prison
The NatWest Three are released from custody after serving part of their sentences.
In 2002, British businessmen Giles Darby, David Bermingham, and Gary Mulgrew, collectively known as the NatWest Three, were indicted in Houston, Texas, on seven counts of wire fraud related to their former employer, Greenwich NatWest, amid the Enron scandal. The incident occurred during their involvement with a Cayman Islands partnership, Swap Sub, which was created to manage Enron's investments. Following a protracted legal battle in the UK, the three were extradited to the United States in 2006 and subsequently pleaded guilty to one count of wire fraud on November 28, 2007, with other charges dropped. They were sentenced to 37 months in prison on February 22, 2008, initially serving time in the US before being repatriated to British prisons, from which they were released in August 2010. Significant evidence included their signed Statement of Facts detailing their realization of the value of NatWest's interest in Swap Sub and their involvement in misleading financial transactions that enriched certain Enron employees.
Public speculation centers on the extent of the NatWest Three's involvement in the Enron scandal, with some believing they acted as scapegoats for larger corporate malfeasance. There are theories that they may have been misled by Enron executives or that their actions were part of a broader scheme orchestrated by higher-ups at both Enron and Greenwich NatWest. Additionally, discussions persist regarding the fairness of their extradition and sentencing, suggesting that political and financial interests may have influenced the legal outcomes.
The NatWest Three: A Tale of Ambition, Deceit, and International Justice
The Players
Our story begins with three British businessmen: Giles Darby, David Bermingham, and Gary Mulgrew, collectively known as the NatWest Three. These men stood at the heart of a scandal that would stretch across the Atlantic, embroiled in the notorious Enron debacle. In 2002, the trio was indicted in Houston, Texas, on seven counts of wire fraud against their former employer, Greenwich NatWest. This indictment was part of the larger web of the Enron scandal, which had already rocked the financial world.
The Background
To understand the intricacies of this case, we must travel back to the year 2000. At that time, Darby, Bermingham, and Mulgrew were employed by Greenwich NatWest, a division of National Westminster Bank, which later became part of the Royal Bank of Scotland (RBS). Their involvement with the American energy giant Enron was through a Cayman Islands-registered partnership known as Swap Sub.
Swap Sub was the brainchild of Andrew Fastow, Enron's CFO, designed ostensibly to hedge Enron's investment in Rhythms NetConnections, an internet service provider. The entity's assets consisted of cash and Enron stock, while its liability was an option for Enron to sell its entire investment in Rhythms at a predetermined price in 2004. NatWest and Credit Suisse First Boston both held stakes in Swap Sub, with the remainder owned by a partnership managed by Fastow.
In March 2000, Enron decided to terminate its hedging arrangement with Swap Sub. Fastow orchestrated a $30 million payment to recover the Enron stock Swap Sub held, despite Swap Sub owing Enron due to a decline in Rhythms' stock price. Of this payment, $10 million went to Credit Suisse First Boston, and Fastow falsely informed Enron that the remaining $20 million would go to NatWest. However, NatWest only received $1 million, enriching several Enron employees who had interests in Swap Sub.
The Crime
The pivotal moment occurred in early 2000 when the three bankers realized the potential value of NatWest's interest in Swap Sub due to rising stock prices. On February 22, they presented a proposal to Fastow aimed at capturing this value, which Fastow ultimately rejected. Yet, shortly thereafter, Fastow approached Mulgrew with an offer to purchase NatWest's stake in Swap Sub, along with an "unspecified financial opportunity" if Mulgrew left NatWest. Mulgrew shared this with Darby and Bermingham.
By March 6, Fastow's assistant, Michael Kopper, formally proposed that a company he controlled would purchase NatWest's interest for $1 million. The three bankers recommended that NatWest accept the offer. They later discovered that the "financial opportunity" involved acquiring a portion of NatWest's stake in Swap Sub for themselves. Kopper facilitated a deal for them to acquire a put option on half of NatWest’s former stake in the company. By March 17, Darby had gathered the necessary signatures to finalize the sale, and by March 20, the three executed the option agreement with Kopper.
The trio kept their dealings with Fastow and Kopper secret from NatWest and concealed their newfound financial interest in Swap Sub. By April 21, Bermingham had resigned from NatWest and exercised the options, yielding a profit of over $7 million, which was split among the three.
The Investigation
The legal storm began brewing in November 2001 when the three, now working at Royal Bank of Canada, learned of an SEC investigation into Fastow. They voluntarily approached the British Financial Services Authority (FSA) to discuss the deal, claiming transparency. Bermingham later insisted, "We gave [the FSA] everything because we thought we had nothing to hide."
The FSA completed its inquiry in February 2002 without taking action but forwarded its findings to the SEC, which passed them to the US Department of Justice. The FSA's report detailed potential conflicts of interest, suggesting evidence of the trio's wrongdoing.
The Extradition Battle
In June 2002, US arrest warrants were issued, and by September, a Houston grand jury indicted the three on seven counts of wire fraud. These charges corresponded to documents transmitted electronically in furtherance of the fraud. Although Enron officials were involved, the indictment did not directly link the trio's actions to Enron's collapse.
US prosecutors began extradition proceedings in 2002, but it wasn't until April 23, 2004, that the trio was arrested in Britain, sparking widespread controversy. A magistrate ruled in September 2004 that extradition could proceed. The three sued the Serious Fraud Office (SFO) to force a UK prosecution, but the SFO deferred to US authorities, citing stronger jurisdictional claims.
After a lengthy legal struggle, Home Secretary Charles Clarke endorsed the extradition in May 2005. The trio's appeals failed at every level, including the European Court of Human Rights.
The US Legal Proceedings
Exhausted of options, the NatWest Three arrived in Houston on July 13, 2006, spending a single night in the Federal Detention Center before being released under strict conditions. They faced mounting legal fees and were restricted to the Houston area, unable to meet freely or seek employment beyond the city.
Trial dates were postponed multiple times, initially set for February 2007, then September 2007, and finally January 2008. The delays exacerbated their hardships, separating them from families and burdening them with legal costs.
The case saw further complications when the three sought video testimony from British colleagues, claiming that some feared US government retaliation. They alleged obstruction from RBS and RBC, which hindered their defense efforts.
The Plea Bargain
On November 28, 2007, the NatWest Three accepted a plea bargain, pleading guilty to one count of wire fraud related to the electronic transmission of Swap Sub sale documents. In return, six counts were dropped, and US prosecutors supported their request to serve part of their sentences in the UK.
Prosecutor Alice Fisher stated that the three admitted to defrauding NatWest through a secret deal with Enron officers, profiting personally at their employer's expense. However, some British commentators speculated that the guilty pleas were motivated by the threat of lengthy sentences and prolonged legal ordeals rather than actual guilt.
The Sentencing and Aftermath
On February 22, 2008, the three were sentenced to 37 months in prison. Initially incarcerated in the US, they were later transferred to British prisons to complete their sentences. By August 2010, the NatWest Three were released from custody.
The saga of the NatWest Three stands as a cautionary tale of corporate ambition, deceit, and the complexities of international justice. It highlights the far-reaching implications of corporate scandals and the struggle for transparency in the financial world.
Sources
For further information, please visit the Wikipedia article on the NatWest Three.
No Recent News
No recent news articles found for this case. Check back later for updates.
No Evidence Submitted
No evidence found for this case. Be the first to submit evidence in the comments below.
Join the discussion
Loading comments...
Initial Proposal to Enron
NatWest bankers present a proposal to Enron CFO Andrew Fastow to capture value from Swap Sub.
Option Agreement Executed
The NatWest Three execute an option agreement with Fastow's assistant to acquire a stake in Swap Sub.
FSA Investigation Begins
The NatWest Three voluntarily meet with the British Financial Services Authority regarding the SEC investigation.
Indictment Issued
The NatWest Three are indicted on seven counts of wire fraud by a grand jury in Houston.
Arrest in UK
The NatWest Three are arrested in Britain as part of the extradition process to the US.
Extradition to US
The NatWest Three arrive in Houston after exhausting all legal avenues against extradition.
Plea Bargain Accepted
The NatWest Three plead guilty to one count of wire fraud in exchange for dropping other charges.
Sentencing
The NatWest Three are sentenced to 37 months in prison and ordered to repay $7.3 million.
Release from Prison
The NatWest Three are released from custody after serving part of their sentences.