Langbar International

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Langbar International is a limited company that was listed on the Alternative Investment Market of the London Stock Exchange as Crown Corporation Limited in 2003 and is subject of the biggest share fraud on the Exchange to date. It is presently being investigated by the Serious Fraud Office[1][2][3][4][5][6], the City of London Police, the Accountancy Investigation and Disciplinary Board[7] and the subject of many civil legal actions in the High Court.[8][9][10][11][12][13][14][15]

Crown Corporation, which changed its name to Langbar International Limited in 2005, was a pump and dump fraud, in that the company did not possess the assets that it declared at listing.[16][17][18]

Contents

[edit] Formation and listing on AIM

The Company was established by Mr Mariusz Rybak (‘‘Mr Rybak’’) in Bermuda on 4 June 2003 under the name of Crown Corporation Limited. Mr Jean-Pierre Regli (‘‘Mr Regli’’), Mr Wolfgang Menzel (‘‘Mr Menzel’’), and Mr Rybak were each appointed as a director of the Company on 6 August 2003. Mr Menzel resigned as a director on 18 December 2003. Mr Friedrich Kramer was appointed as a non-executive director in October 2003 (and resigned on 6 June 2005). Some controversy exists as to the circumstances of Mr Menzel’s resignation.[19][20][21]

The Company was listed on the Alternative Investment Market (‘‘AIM’’) in London on 31 October 2003. The main subscribers for Common Shares in the Company on its floatation were a German company Allgemeine Vermogensverwaltung Frankfurt AG (‘‘AVF’’) and a Delaware incorporated company, Lambert Financial Investments Limited (‘‘Lambert’’). Abraham ‘‘Avi’’ Arad Hochman (‘‘Mr Hochman’’) was the principal director of Lambert. Lambert did not pay for its Common Shares with cash, but instead provided an ‘‘international certificate of deposit’’ purportedly issued by Banco do Brasil certifying that US$275,000,000 had been deposited at the bank payable to the order of the Company (the ‘‘2003 CD’’).

Common Shares were also held by the other persons named below and in particular by Mr Rybak and a company admitted by Mr Rybak to be controlled by him, namely CMC Crown Management Corporation Limited (‘‘CMC’’). Following the admission onto AIM (and taking account of the subscription agreements entered into with AVF and Lambert), the total number of issued Common Shares in the Company was 70,000,000.

The Company’s AIM admission document stated that the Company intended to establish itself as a diversified holding company providing management and other services to companies in which it would hold substantial interests. The Company’s primary objective was said to be to create value for its shareholders by making investments in publicly traded companies in which, via its directors, managers and external advisers it could assume an active role and have significant influence over the management and direction. The Company has now stated that it believes these statements to be inaccurate. A copy of the Company’s AIM admission document is on the Company’s website: [22]

In November and December 2003, the Company announced that it had exchanged contracts with various Argentinian entities in respect of the installation of waste management, water treatment infrastructure and security products and services.[23][24][25]

The benefit of these contracts was subsequently assigned to Lambert in May 2004[26] in exchange for a promissory note in the sum of US$350,000,000 payable on 31 May 2005 or earlier on demand. On 1 June 2005, the Company announced that Lambert had met its obligations to the Company pursuant to the promissory note by way of issue of a further certificate of deposit issued by Banco do Brasil in favour of the Company.[27] This further certificate (the ‘‘2005 CD’’) was stated to be for the sum of US$367,500,000 and was purported to mature on 13 December 2009. Since the 2005 CD is known to be false[28], Lambert remains liable for the outstanding monies owed under the promissory note.

Save for these purported contracts, the Company appears to have been involved in a series of abortive transactions throughout its history, none of which appear to have resulted in any substantial purchase or investment by the Company.

[edit] Events leading up to suspension

On 6 June 2005, Mr Rybak resigned as a director of the Company[29] and Mr Stuart Pearson (‘‘Mr Pearson’’)[30] was appointed as Chief Executive of the Company. Mr Philip Wood (‘‘Mr Wood’’)[31] was appointed as a non-executive director of the Company on 13 June 2005.

In July 2005, Mr Pearson, Mr Wood and Mr Hochman travelled to Brazil in order to investigate the status of assets of the Company which were believed at that time to be held by Banco do Brasil, and to discuss the possibility of transferring these assets outside of Brazil. Subsequent to that trip, the Company announced on 19 July 2005 that it had received confirmation from Banco do Brasil as to the Company’s ownership of dollar term deposits in the total sum of US$659,600,000.[32]

On 16 December 2004, the Company approved a transaction whereby it would contribute the 2003 CD to Crown Pharmaceuticals Ltd (‘‘Pharma’’), a wholly owned subsidiary of the Company, and would thereafter distribute its shares in Pharma to its shareholders as a dividend in specie so that each shareholder would receive one Pharma share for each Common Share and, under Bye-law 12.3.3 of the Company’s Bye-laws, CMC would receive the same number of shares as the total number received by the holders of the Common Shares.[33]

This transaction was subsequently unwound[34] and, on 6 June 2005, the Company repurchased the 2003 CD from Pharma in consideration for the issue to Pharma of 71,000,000 Common Shares.[35] These shares were allotted to Pharma on 25 July 2005 and thereafter distributed pro rata to its own shareholders.

As a result of this transaction, Mr Rybak and/or CMC are believed to have received a tranche of approximately 40 million Common Shares. This is in addition to the further total of 25,127,525 Common Shares issued to Mr Rybak/CMC during 2005 by way of purported satisfaction of unpaid debts and dividends.

On 18 August 2005, the Company announced that its brokers, Arden Partners Limited (‘‘Arden’’), had placed 9,100,000 new Common Shares of 0.001 euros each in the capital of the Company and placed a further 9,100,000 existing Common Shares on behalf of Lambert.[36]

On or about 31 August 2005, Mr Hochman informed Mr Pearson that ABN AMRO Bank in the Netherlands (‘‘ABN AMRO’’) had agreed to a transfer of the 2003 CD from Banco do Brasil and, on 1 September 2005, Mr Pearson received a copy of a certificate of deposit purportedly issued by ABN AMRO dated 30 August 2005 in the sum of US$294,000,000 (‘‘the ABN AMRO CD’’). The Company subsequently made an announcement to this effect on 6 September 2005.[37]

However, on 11 October 2005, and as a result of a request made by Mr Pearson to verify the ABN AMRO CD, Arden reported to the Company that ABN AMRO had confirmed that it did not recognise the ABN AMRO CD, that the Company did not have an account with ABN AMRO and that ABN AMRO no longer issued paper certificates of deposit.

On 12 October 2005, trading in the Securities in the Company on AIM was suspended.[38][39]

It appears that before June 2005, there had been relatively little trading on AIM in the Securities of the Company. In the period between June and October 2005, a number of private and institutional investors acquired Securities. The Company understands that Mr Rybak/CMC and Lambert sold in excess of 45 million Common Shares during this period.

[edit] Events post suspension

On 25 November 2005, the Company announced that, following the suspension of trading in the Company’s Securities, Kroll Associates UK Limited (‘‘Kroll’’) had been appointed by the Company to undertake verification of the Company’s cash deposits with Banco do Brasil and ABN AMRO. The Company also announced that, following its initial investigations, Kroll had reported to the Company that it appeared likely that the Company had been subject to a serious fraud affecting the cash deposits. The announcement stated that Kroll had not been able to establish the existence of, nor verify the Company’s entitlement to, any such cash deposits at any time in the Company’s history.[40]

On 29 November 2005, the Serious Fraud Office announced that following a preliminary assessment of information referred by the City of London Police, authorised the commencement of an investigation in relation to Langbar International Limited.[41]

On 16 December 2005, David Buchler (‘‘Mr Buchler’’) was appointed as Executive Chairman of the Company and Christopher Wallis (‘‘Mr Wallis’’) was appointed as Finance Director of the Company[42]. On the same date, Mr Wood and Mr Regli resigned as Directors. On 10 February 2006, Mr Pearson resigned as a Director.[43]

On their appointment, Mr Buchler and Mr Wallis commenced a detailed investigation into the Company and the frauds that appeared to have been committed on the Company and the Scheme Creditors.

On 14 February 2006, an informal meeting of the Company’s shareholders took place. At this meeting Mr Buchler [44]and the Company’s legal advisers (Sion Richards of the law firm Jones Day and Robin Spencer of the law firm Lovells) addressed the meeting.[45][46] It was explained that the investigations into the frauds were continuing and that the Company would pursue claims against appropriate individuals and companies in order to make recoveries for the benefit of the Company and its shareholders.

On 4 April 2006, the Rt Hon Sir Jeremy Hanley KCMG, Chartered Accountant, was appointed as an independent non-executive director of the Company. On 11 May 2006, the Rt Hon Sir Jeremy Hanley KCMG was appointed deputy chairman of the Company.[47]

On 12 April 2006, the Company’s AIM listing was automatically cancelled (pursuant to AIM Rule 41 which provides for the cancellation of a company’s listing six months after trading in its securities has been suspended).[48]

Since that date, further announcements regarding the Company have been made on the Company’s website (see Website References below). The website also includes further information on the professional qualifications and experience of Mr Buchler, Mr Wallis and Mr Hanley and the statements made at the informal shareholders meeting on 14 February.

[edit] Legal claims by the company

On 28 February 2006, the Company issued claims against certain persons and companies who it believed were primarily responsible for the fraud that had been committed. These were Mr Rybak, Mr Regli, Mr Hochman, Lambert, and CMC.

The claim issued on 28 February 2006 has since been extended to include Mr Rybak’s wife, Mrs Izabela Rybak (‘‘Mrs Rybak’’), and a company incorporated in Monaco, SCI Atol (a company allegedly owned and controlled by Mrs Rybak and her daughter), as defendants.

These individuals and companies are included in the persons defined in the company's Scheme of Arrangement as the Named Persons. The Named Persons include not only Lambert but also two other entities, incorporated in Delaware and England, respectively, with an almost identical name (Lambert Financial Investment Limited). Following discussions with Mr Hochman, the Company had reason to believe that a substantial number of Securities originally held by Lambert were transferred to or through these other entities in connection with a proposed transaction in which the Securities would be used as security for the provision of a loan.

In the case of the three individual defendants, the proceedings include claims for damages for deceit and conspiracy to defraud and, in so far as the two former Directors are concerned, claims for damages for breach of their fiduciary duties owed to the Company.

The proceedings also include claims for a constructive trust over the proceeds received by Mr Rybak and Lambert resulting from the sale of Securities in the Company, together with a claim against Lambert for payment of US$350 million due under the terms of a promissory note dated 31 May 2004.

The Company believed that it was the proper claimant in respect of the claims brought against the named defendants. The Company was aware though that, in the case of some of these claims, one or more of the defendants might seek to argue that the claims should not have been brought by the Company and could only properly be brought by the holders of Securities. Rybak raised this very argument. The Company therefore sought a Scheme of Arrangement, a binding legal agreement between the Company and the shareholders. The purpose of the Scheme is to allow the Company to pursue these claims as assignee of the rights of the holders of Securities and thereby ensure that any challenge over rights ceases to be available to any of the defendants.

A worldwide asset freezing injunction was made by the English High Court on 24 February 2006 and served upon the defendants during the week commencing 7 March 2006. There were various amendments made to the freezing injunction including those made on 3 April 2006 whereby the level of the worldwide asset freezing injunction was increased, in so far as it related to Mr Rybak, from 29 million euros to 49.5 million euros.

A separate claim was issued on 12 April 2006 against Mr Rybak and Mrs Rybak in the High Court of the Republic of Singapore and an injunction was granted on 13 April 2006 freezing assets within that jurisdiction.

The Company has also made a criminal complaint against certain of the Named Persons in Switzerland, and it is understood that an order freezing certain assets and requiring the disclosure of relevant documentation has been made as a result. The complaint is currently being handled by an investigating magistrate and the Company will be providing assistance to the magistrate in respect of those investigations.

Mr Rybak, CMC, Mrs Rybak and SCI Atol have all now filed Acknowledgments of Service, stating that they intend to defend the claims made against them.

On 2 June 2006, applications were made to strike out part of the Company’s claim or to obtain summary judgment on this basis. As previously mentioned, the purpose of the Scheme was to allow the Company to pursue these claims as assignees of the rights of the holders of Securities and thereby ensure that this line of argument was not available to any of the defendants. The Strike Out Application, which relates to those elements of the claims regarding breaches of fiduciary duties owed to the Company and claims for a constructive trust, represents a substantial proportion of the Company’s claim in value. The grounds on which the Strike Out Application was pursued include the assertion that ‘‘the proper claimants (if any) would be aggrieved investors in the Claimant company rather than the [Company] itself’’. However, as the company achieved the assignment of rights from the shareholders, the Strike Out Application was discontinued.

On 14 June 2006, Mr Regli was sentenced to 6 months in prison by the Hon. Mr Justice Kitchen, for failing to comply with each of his obligations under the freezing order/injunction dated 24 February 2006.[49][50][51]

On 1 December 2006, Mr Hochman was sentenced twice to 6 months in prison by the Hon. Mr Justice Blackburne for both contempt of court, failing to comply with the disclosure requirements of a court order made in March 2006 and also for the wilful defiance of the worldwide freezing order/injunction on the assets of Lambert Financial Investments and IMI, of whom Mr Hochman is a director, when Mr Hochman moved two sets of 3 million euros (6 million total) whilst the injunction/Mareva was already in place.[52][53]

On 19 October 2007, Nabarro Wells[54], Langbar's Nominated Advisor at listing, was fined £250,000 by the London Stock Exchange and publicly censured for breaching the rules of the AIM.[55][56][57]

On 12 November 2007, the proceedings of Langbar International Limited v Mariusz Rybak and others was opened by the Hon. Mr Justice Blackburne in Court 56 of the Chancery Division of the High Court.[58] Skeleton arguments were submitted by both sides and the His Lordship has adjourned for a week to complete the suggested reading list. The case will reconvene on 19 November 2007.

On 21 April 2008, after 57 days of proceedings in the High Court, London, Mariusz Rybak agreed a settlement of £30 million with Langbar to end the claims against the Rybak defendants, Mariusz Rybak, Izabela Rybak, CMC Management and SCI Atol.[59] The case will continue on 12 May 2008 when the Langbar litigants return to the court to discuss the other defendants.


[edit] References

  1. ^ Serious Fraud Office Press Releases 29 November 2005
  2. ^ "Fraud inquiry starts into shell firm's missing millions" by Simon Bowers The Guardian 26 November 2005
  3. ^ "Langbar face SFO probe over possible missing cash" by David Blackwell Financial Times 26 November 2005
  4. ^ "SFO inquiry on way into fall of Langbar" by Robert Miller Daily Telegraph 26 November 2005
  5. ^ "Fraud office launches inquiry into Langbar" by Simon Bowers The Guardian 30 November 2005
  6. ^ "Langbar: The SFO are called in" by Eric Barkas Yorkshire Post 29 November 2005
  7. ^ Accountancy Investigation & Disciplinary Board Press Release 23 June 2006
  8. ^ "Langbar sues over missing £365m" BBC News 13 March 2006
  9. ^ "Langbar accuses two ex-directors of 'conspiracy to defraud" by Simon Bowers The Guardian 14 March 2006
  10. ^ "Langbar makes £29m claim" by James Rossiter Evening Standard 14 March 2006
  11. ^ "Langbar launches $477m suit against Rybak, others" by James Bagnall The Ottawa Citizen 14 March 2006
  12. ^ "Langbar launches action against former directors" by Nicholas Neveling Accountancy Age 14 March 2006
  13. ^ "Langbar launches legal challenges" Investors Chronicle 17 March 2006
  14. ^ "Holders launch Langbar claim" by Nikki Tait Financial Times 22 December 2006
  15. ^ "Campaigner has to fight for himself" The Times 21 April 2007
  16. ^ "Langbar chief in investor talks over 'missing £365m'" by Caroline Merrell The Times 1 December 2005
  17. ^ "A Crown farce: how Langbar mislaid £365m" by Paul Durman and Louise Armistead The Sunday Times 4 December 2005
  18. ^ "AIM becomes victim of £365m fraud" by Michael Jivkov The Independent 26 November 2005
  19. ^ Regulated News Service release 1957S 18 November 2003
  20. ^ AFX News Release 18 November 2003
  21. ^ "Former chief at odds with fraud inquiry firm" by Simon Bowers The Guardian 29 November 2005
  22. ^ Langbar International website
  23. ^ Regulated News Service release 8529R 10 November 2003
  24. ^ AFX News Release 10 November 2003
  25. ^ Regulated News Service release 3031T 16 December 2003
  26. ^ Regulated News Service release 3002Z 02 June 2004
  27. ^ Regulated News Service release 9861M 01 June 2005
  28. ^ Regulated News Service release 25 November 2005
  29. ^ Regulated News Service release 2426N 07 June 2005
  30. ^ Regulated News Service release 2898N 08 June 2005
  31. ^ Regulated News Service release 5716N 15 June 2005
  32. ^ Regulated News Service release 0318P 19 July 2005
  33. ^ Regulated News Service release 5337G 17 December 2004
  34. ^ Regulated News Service release 2426N 07 June 2005
  35. ^ Regulated News Service release 6712N 16 June 2005
  36. ^ Regulated News Service release 2406Q 18 August 2005
  37. ^ Regulated News Service release 06 September 2005
  38. ^ Regulated News Service release 12 October 2005
  39. ^ Regulated News Service release 12 October 2005
  40. ^ Regulated News Service release 25 November 2005
  41. ^ Serious Fraud Office Press Release 29 November 2005
  42. ^ Regulated News Service release 19 December 2005
  43. ^ Regulated News Service release 10 February 2006
  44. ^ Statement by Chairman 14 February 2006
  45. ^ Statement by Jones Day 14 February 2006
  46. ^ Statement by Lovells 14 February 2006
  47. ^ Regulated News Service release 04 April 2006
  48. ^ Regulated News Service release 11 April 2006
  49. ^ Langbar Action Group website 14 June 2006
  50. ^ Langbar website 14 June 2006
  51. ^ "Prison for ex-Langbar director" by David Blackwell Financial Times 15 June 2006
  52. ^ Langbar Action Group website 1 December 2006
  53. ^ Langbar website 01 December 2006
  54. ^ Nabarro Wells website
  55. ^ "Nomad strayed from market rules" by David Blackwell Financial Times 19 October 2007
  56. ^ "Nabarro Wells censured by LSE over listing" by Robert Lea Evening Standard 19 October 2007
  57. ^ "LSE hits Nabarro Wells with £250,000 fine over AIM checks" by Siobhan Kennedy The Times 20 October 2007
  58. ^ "Court battle over missing millions" by Ros Snowdon Yorkshire Post 13 November 2007
  59. ^ "Langbar founder pays £30m to settle lawsuit" By David Blackwell and Megan Murphy Financial Times 21 April 2008

[edit] Website References

[edit] See also