Ex-JC Flowers UK CEO fined $4.5 million for fraudulent invoicing scheme

[News_Editor]

Ex-JC Flowers UK CEO fined $4.5 million for fraudulent invoicing scheme

2012-02-01 04:35:03 GMT+7 (ICT)

LONDON (BNO NEWS) -- Britain's financial regulator on Tuesday fined former J.C. Flowers UK chief Ravi Sinha a fine of more than £2.8 million ($4.5 million) for a series of fraudulent invoices. The investor has also been banned from working in the sector.

Sinha, who was previously an adviser to Bank of America chairman Ken Lewis in the Merrill Lynch deal, served as chief executive officer of private equity firm J.C. Flowers U.K. between May 2005 and November 2009. He was also a managing director of J.C. Flowers U.S.

After an internal investigation which led to Sinha being fired from the company, J.C. Flowers reported him to Britain's Financial Services Authority (FSA) after it emerged that he had sent fraudulent invoices to a company in which the JCF Funds had invested. He did so by issuing invoices to the company without the knowledge of anyone else at JCF.

"In order to secure payment of the invoices, Mr Sinha deliberately misled the CEO of Company A by claiming that the payments had been authorized and approved by JCF when in fact no such authorization or approval had been sought or given," the FSA said in its decision on Tuesday. The European business which was the victim of the scheme was not identified by the regulator.

Officials said Sinha approached the company's CEO in January 2009 and requested and received a loan of €248,396 (£205,820 or $324,200), which was the same amount of a payment he owed on a bank loan. He approached the CEO again in April 2009 and informed him that JCF had authorized him to charge advisory fees, even though JCF had given no such authorization.

"In respect of each payment, Mr Sinha submitted an invoice to Company A for fees payable to directly to him, which purported to set out the advisory services he had personally provided to Company A," the FSA said. "In fact the invoices were fraudulent and Mr Sinha had not provided any advisory services to Company A in his personal capacity."

Over the course of several months, the company paid about €1.5 million (£1.3 million or $2.1 million) to Sinha's private bank account.

According to the financial regulator, work Sinha performed in relation to the victim company included monitoring the investments made and exploring potential exit routes from that investment. For this work, Sinha was already earning a salary of $800,000 (£507,800) as CEO of JCF UK and $400,000 (£253,900) as managing director of JCF U.S. He was also entitled to a share in any gains made on investments.

Sinha's conduct was discovered by JCF UK in October 2009 and the company promptly notified the FSA. He was immediately suspended and his employment was subsequently terminated several weeks later. The financial regulator put no blame on JCF as Shina acted alone.

In written and oral representations, Sinha admitted that he had engaged in fraudulent conduct but argued the FSA should take into account his admissions, cooperation and his serious financial hardship. He also argued that the conduct was not extremely serious because he could have received authorization from JCF if he wanted to, an assertion denied by JCF.

Despite the objections, including the likelihood of Sinha having to file for bankruptcy for a second time, the FSA decided to fine Sinha more than £2.8 million ($4.5 million) and ban him from performing any function in relation to any regulated activity in Britain's financial services industry. It is one of the highest-ever fines against an individual in the UK.

"The FSA notes that Mr Sinha's bankruptcy was only discharged on August 23, 2011," the regulator said in its decision. "Moreover the FSA accepts that the imposition of the financial penalty would probably result in Mr Sinha suffering serious financial hardship. Indeed the FSA accepts that it is probable that the imposition of the financial penalty would have the unfortunate result of him once again being made bankrupt."

But the FSA said the seriousness of Sinha's misconduct means there should be no lower financial penalty only because of the impact it will have on him. The FSA ordered Sinha to pay the financial penalty by February 14.

-- © BNO News All rights reserved 2012-02-01