Guinness share-trading fraud

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The Guinness share-trading fraud was a famous British business scandal of the 1980s. It involved an attempt to manipulate the stock market on a massive scale to inflate the price of Guinness shares and thereby assist a £2.7 billion take-over bid for the Scottish drinks company Distillers. The scandal was discovered after testimony as part of a plea bargain by the US stock trader Ivan Boesky. Ernest Saunders, Gerald Ronson, Jack Lyons and Anthony Parnes, the so-called "Guinness four", were charged, paid heavy fines and, with the exception of Lyons, who was suffering from ill-health, served prison sentences later reduced on appeal. Unsavoury comments were passed by Peregrine Worsthorne, among others, in relation to the fact that three of the men were members of the Jewish-British community, while Saunders had a Jewish father, and some commentators have alleged a greater or lesser antisemitic component to pursuit of the four fraudsters. As The Observer has noted:

Many in the Anglo-Jewish community were made wary by aspects of the Guinness share-rigging scandal in the late Eighties. Of the four men eventually convicted over their roles in that affair, three were Jews and the fourth, former Guinness chief executive Ernest Saunders, was the son of a Jew. The fact that other, non-Jewish, businessmen were not called upon to justify their actions was widely noted and criticised at the time.^[1]

The Guinness Four

Ernest Saunders: Former Guinness chief executive. Jailed for 5 years, halved on appeal, for false accounting, conspiracy, and theft.

(Sir)Jack Lyons: Financier. Fined £4m for theft and false accounting. Stripped of knighthood

Anthony Parnes: City Trader. Jailed for 30 months, reduced on appeal to 21 months, for false accounting and theft.

Gerald Ronson: Businessman. Jailed for a year, and fined £5m, for false accounting and theft.

Guinness One ended in Sept 1990 with guilty verdicts against all four men and jail sentences for Saunders (five years), Ronson (one year) and Parnes (two and a half years). Ronson was fined £5 million and Lyons £4 million. Ronson, Parnes and Lyons were all ordered to pay £440,000 in costs.

In May 1991 Saunders and his co-accused appealed against their convictions. The guilty verdicts were upheld, though his sentence was halved after medical evidence was produced to suggest he was suffering from a mental illness. Saunders has since maintained he must have been depressed. Saunders claimed he was suffering from Alzheimer's Disease, a common form of dementia. He convinced numerous medical experts of his condition and spontaneously went into remission after the trial. Alzheimer's like all dementia's is not curable and a progressive degenerative disease of the brain. Saunders stated he was taking painkillers during his prison stay which leads one to believe he wasn't faking, but instead was suffering from delirium, a rapid degenerative, but curable brain disorder. Any medical expert can surely differentially diagnose the two easily as delirum is diagnosable easily during life, while dementia is only analyzable without a doubt at autopsy.

The case against Spens and Seelig collapsed in 1992 and charges against Mayhew were dropped after pre-trial challenges by his lawyers. Ward returned to Britain to stand trial and was acquitted of any dishonesty.

After work by lawyers for Parnes and Ronson in unearthing material about SFO investigations into other support operations which they said should have been disclosed, a second appeal hearing was granted last year. Again, the judges upheld the convictions.

The others accused were Lord Patrick Spens, former director of Henry Ansbacher & Company, charged with 4 offenses; Roger Seelig, former corporate finance director at Morgan Grenfell & Company, charged with 12 offences. Charges against David Mayhew of Cazenove, a takeover consultant, never made it to trial. A DTI report in 1997 clarified that the biggest buyer of Guinness shares to support the bid was J Rothschild Holdings, the investment group headed by Lord Rothschild, chairman of the National Gallery trustees. The £28.7 million spent by his company exceeded the £25.1 million support from companies owned by Gerald Ronson, who was jailed for his role, but there is no criticism of J Rothschild.

Whereas other supporters were paid for their help and given indemnities against losses, J Rothschild received no payment. The inspectors say the firm's motive was to create a favourable climate for obtaining future business from Guinness's City advisers, the stockbrokers Cazenove and the merchant bank Morgan Grenfell.

J Rothschild issued a statement saying it was pleased that the report had at last been published and making clear that the firm was not a party to the wrongdoings identified in the report.

The statement said: "Guinness shares were purchased for proper commercial motives. J Rothschild was subject to no obligation to disclose the share purchases. The arrangements were, and were regarded as, perfectly normal at the time."

[edit] Further reading

Nick Kochan and Hugh Pym - The Guinness Affair: Anatomy of a Scandal (1987) ISBN 0-7470-2610-6
Adrian Milne and James Long - Guinness Scandal: Biggest Story in the City's History (1990) ISBN 0-7181-3445-1
James Saunders - Nightmare: Ernest Saunders and the Guinness Affair (Arrow Books, 1988) ISBN 0-09-974480-5
Jonathan Guinness - Requiem for a Family Business (Macmillan 1997) ISBN 0-333-66191-5 (an insider's account).
Paul Channon
Walter Edward Guinness, 1st Baron Moyne