The lock fakers
5 December 2005
28 January 2013
23 October 2013
7 Jan 2013
28 February 2013
4 November 2013
In early November, reporting restrictions were lifted on the outcome of the trials concerning the Cheney pension scheme fraud. Four men received a total of 26 years in prison, ranging from three and a half to eight years, for conspiracy to steal the Cheney pension scheme between April and October 2000.
The convictions had remained out of the public domain until now because one of the men, regarded by the trial and appeal judges and a government inquiry to be the key individual in the fraud, was facing separate charges relating to breaches of a bankruptcy order. Kevin Sykes, who had a criminal record, had managed to calmly coordinate the plundering of almost the entire pension scheme under the nose of the regulator at the time, the Occupational Pensions Regulatory Authority (Opra), leading to the Government mandating Sir Gerald Hosker to investigate what, if anything, Opra had done wrong and how procedures could be improved. The Hosker report was completed some time ago but has only now been published following the lifting of the reporting restrictions on the convictions of the conspirators.
The facts of the case
The fraud itself was not large by today's standards (£2.9m was taken), but it was callous and shocking on a number of levels. For one, the human impact, given that the members of the scheme were largely long-serving employees and former employees of an old lockmaking company in a deprived area of Birmingham. Some members had worked for the company for more than 50 years and faced losing their entire pensions.
It also shocked because of the ease with which Sykes had arrogantly fronted the fraud. Through the purchase of the shares of the loss-making company, CW Cheney & Son, for £5,000 in early 2000, Sykes and his associates acted through puppet directors and were able to appoint their nominees as trustees of the pension scheme, thereby gaining access to £3m. It was then a case of creating the necessary documentation to disinvest the fund and set up the chains of shell companies through which the money could pass.
Failings by the regulator
The Hosker report found numerous failings in the way that Opra dealt with the Cheney scheme. It found that the only reason the fraud was unearthed by Opra in October 2000 (by which time the vast majority of the scheme's assets had already been taken) was because of a technical issue relating to an unconnected debt owed to the scheme. Opra was replaced in April 2005 by the Pensions Regulator, established by the Pensions Act 2004. So the question is whether the new regulator is more likely than Opra to prevent another fraud such as Cheney.
Opra was essentially a reactive regulator, relying on whistleblowing reports made by certain scheme advisers. Its powers were largely limited to making prohibition, suspension and disqualification orders against trustees, appointing independent trustees in certain circumstances and imposing civil penalties against trustees, employers, auditors or actuaries. The Pensions Act 2004 states that the new regulator's main objectives are to protect pension benefits, to reduce the risk of claims on the Pension Protection Fund and to promote the effective administration of pension schemes. In order to meet these objectives, the regulator has been given wider powers. These include powers to freeze a scheme's assets, to serve contribution notices and financial support directions on third parties and to make restoration orders reversing transactions at undervalue.
New reporting requirements
New provisions in the Pensions Act 2004 also impose an obligation on anyone involved in the administration of a pension scheme or an adviser to a scheme to report any suspected breaches of pensions legislation to the regulator. Previously, Opra relied on the scheme's actuary or auditor to whistleblow breaches of duty and unlawful scheme activity. The new regulator also has wider powers to collect relevant information in order to identify and focus on schemes that are most likely to present a risk to scheme members' benefits.
Improved IT systems should help, ensuring that information gleaned during any aspect of the regulatory function can be matched with anything else which is suspicious so that leads can be established and investigated. Since earlier whistleblowing and better communication between case-workers at Opra about the data amassed may well have prevented the Cheney fraud, there is hope that the new regulator will tackle frauds along the lines of Cheney well before serious loss is incurred. It will, however, need to be resourced adequately in order that the new powers and systems are effective.
Nick Moser is a partner and Emma Tracey a trainee solicitor, both at Taylor Wessing