UK family forex fraud scheme plays out like a modern day reality show

Oh what a tangled web we weave when first we practice to deceive! This simple rhyme pervades just about every reality theme show going these days, but when a real life family tragedy embodies every facet of these evening drama shows, then you have to wonder how many other stories are at work in the neighborhood. Reality shows demonstrate that riches and wealth are not a perfect formula for a life of peace and harmony, but the desire to live the high life can cause ordinary people to engage in criminal activity without ever considering the consequences.

The following story takes place in the UK and involves a facet of foreign exchange that many of us accept on trust, but, as we shall see, Ponzi schemes can take on many forms and disguises. A cloak of credibility usually surrounds the activity, the first overture of deceit, but the fraud does not occur until actual money changes hands. At that point, the hook has been set. Attempts to get a refund or withdrawal are generally met with resistance, especially if the scheme is in its latter stages of unraveling.

Ponzi schemes are all about stealing your money

The lesson to be learned here is that you must be skeptical at all times whenever you prepay for anything, whether a deposit for goods and services, a deposit to an account, or the purchase of foreign exchange for future use. The latter service was one that had been performed for years by two companies named Crown Currency Exchange Ltd and Crown Holdings Ltd. In order to create an additional air of respectability, a third entity, Mayfair and Grant Ltd, was formed to deal in the lucrative “cash for gold” business. Notice how the choices of names convey an almost haughty level of respectability.

There are all manner of companies that accept prepayments in advance for goods and services. Brokers are just one type, but the law expects firms in these trades to adhere to what are known as basic fiduciary principles when you take funds on deposit. The law, however, varies by industry, and the ability of the law to legislate integrity and virtue has always been circumspect. As a result, the temptation to dip into the “float”, a term for the deposited funds until they are applied as per the desire of the customer, is far too great for some members of our society, especially if economic times have been severe.

The Great Recession, believe it or not, helped to uncover many a fraudulent enterprises by causing a tsunami of cash withdrawal requests from disadvantaged consumers. The first wave of attrition flashed a spotlight on criminal activities across the globe, but the second wave, so to speak, brought many respectable, but thinly capitalized, companies down to their economic knees. Instead of accepting their financial fates, a few desperate owners grabbed for the float funds to support their lavish lifestyles, while aggressively trying to cover up their larceny with elaborate falsified accounting reports. Our tale in the UK begins in October of 2010, when the “Crown” house of cards finally collapsed.

Act One — Introduction to this tale’s cast of characters

The Benstead family and close business associates form the core cast of thieves in this five-act play. Here follows a brief introduction to each protagonist, as of 2010:

• Peter Benstead:  In 2010, the 67 year old patriarch of the family and respected “ideas” man, who had been often heard boasting that he was “great at starting businesses, not so great at managing them”. It was also known that he “relished the gamble to make a quick buck” and would try just about any outlandish scheme that might work. He founded the three family companies.
• Susan Benstead:  Wife, 65, of Peter and benefactor of the high lifestyle that Peter provided that included posh home addresses, luxury cruises, cars, a motor home, and other hallmarks of success.
• Julian Benstead:  Son, 42, of Peter and manager of the Mayfair and Grant gold company.
• Edward James:  Director, 70, of the Crown enterprises, ex-mayor of Glastonbury in Somerset, former Tory councilor, and chairman of Mendip District Council.
• Roderick Schmidt:  Son-in-law, 41, and a senior manager of the company.
• Stephen Matthews: The accounts manager, 47, for the firm.
• Katey Benstead and Victoria O’Brien:  Daughters of Peter, who may have benefited from the fraud and participated in the cover up by destroying pertinent documents.

Peter Benstead opened his series of financial service companies in 2005. The firms were based in Cornwall and allowed both businesses and individuals alike to purchase foreign currency in advance for prospective business trips or tourism. Their customers could pick from over 80 currencies, either in the form of hard currency, travelers cheques, or via banking money transfers.

Act Two – The early days prove to be difficult financially

With the benefit of hindsight, one can easily question the decision to jump full bore into this type of business five years into the new millennium. Travel commissions had all but disappeared. The only remaining sources of revenue would have been transaction fees and currency spreads, which must be low when compared with bank offerings, and interest earned on the float in the system. Interest rates, however, had fallen quite precipitously in the UK from a high in the eighties of 17%, down to 7% in the nineties, and then to 4% by 2006. The advent of global credit and debit cards had also reduced the need to carry large amounts of currency, another blow to Benstead’s business model for success.

Act Three – The Great Recession hits and pressure mounts

The exact date that Benstead began dipping into client account funds is not known, but court papers state that the fraud commenced in December of 2006. In order to live the pretentious life style that he felt he so richly deserved, Benstead bought a £1 million opulent home in Penzance and blew another £46,000 on a world cruise. Other luxury items were purchased, as well, but the pressure to hide his thievery grew in direct proportion.

The purported “ideas” man then went into a higher gear. Insiders would testify that he conjured up a number of ways to falsify the company books, but only after trying his hand at ridiculous get-rich-quick dalliances. Funds were lost chasing wild investments. Outlandish bets were placed on future forex prices that never paid off. His craziest gambit was to throw £60,000 away on a plan for a “reality TV show ‘Dream Island’ where celebrity wannabes would compete for a top prize on a luxury island.” TV executives were not impressed. In the meantime, accounting reports were falsified and the hole in the float balance got bigger and bigger.

Act Four – The financial rollercoaster comes to a screeching halt

In October of 2010, the family could perpetuate the fraud no longer. There was no more cash in the till. Some 12,500 customers were left holding the bag for £20 million. The headlines read, “Peter Benstead and Edward James, joint directors of Crown Currency Exchange Ltd and Crown Holdings, secretary Stephen Matthews, and senior manager Roderick Schmidt, were charged with knowingly carrying on business for a fraudulent purpose and falsified accounts following an investigation by Devon and Cornwall Police. Benstead’s son, Julian Benstead, is charged with one count of fraudulent trading and one count of theft of gold, while his daughter, Katey Benstead, was charged with one count of obtaining a money transfer by deception concerning a fraudulent mortgage application. The seventh person to be charged is Victoria O’Brien.”

There were several other related charges, some to do with destroying valuable documents, but an investigation was ongoing, and at some point, assets would have to be rounded up and converted to cash to pay down company liabilities. The sideline gold business was also shut down with charges of its own. There also was roughly 25 pounds of gold (roughly $500,000) that had gone missing and has yet to be recovered. Per the court order, “”All seven defendants will appear before Westminster Magistrates’ Court on 17 September 2013. Criminal proceedings are now underway and the defendants have a right to a fair trial.”

Act Five – The Wheels of Justice turn slowly but they do turn

Every tragedy usually has a shocker of a scene in its last act, and this tale is no different. The investigations had been completed. Charges had been filed, but Peter Benstead refused to accept the consequences of his actions and pleaded not guilty. Court trials and evidence production proceeded. The jury was to reveal its verdict in the first week of May in 2015, and then days before they rendered their verdict, Peter Benstead committed suicide. The press reported that he “was found dead in his car near his home while jurors at the trial in London were considering the verdicts against him and five others, including his wife and son.”

Judge Michael Gledhill QC felt sorry for Benstead’s grieving widow and spared her having to serve jail time, but he was harsh in his opinion of Benstead’s actions: “Peter Benstead should have pleaded guilty to the offences he faced, the evidence against him was overwhelming. Instead of accepting any responsibility, he pleaded not guilty, sat throughout the trial and he did not say a word in his defense. In the middle of the jury’s deliberations, he decided to take his own life, leaving no explanation. In my view his suicide was not an admission of guilt – it was simply an easy way out of his predicament without any regard to the consequences on either his loved ones or his victims.”

Concluding Remarks

Ponzi schemes have a beginning and an ending. There are no winners when it is all said and done. Customers that lost money in this “Crown” venture are still complaining that the defendants were let off far too lightly with jail sentences amounting to just a few years in most cases. Whether any money will be recovered for injured clients after court costs and penalties are assessed is still to be resolved. At the end of the day, the message is clear. Be very wary whenever you put any money down for future services. Banks are safer than independent enterprises when buying forward forex contracts.

Remember – You are your first and last line of defense when it comes to preventing forex fraud! Stay vigilant

Chris Lee

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