AIM becomes victim of £365m fraud

Kroll finds that Langbar's cash pile never existed * Police and FSA called in to investigate

Langbar International, which claimed a few months ago to be the Alternative Investment Market's biggest cash shell, called in the Financial Services Authority and the police yesterday to help it investigate an apparent multimillion-pound fraud at the company.

The loss was discovered by Kroll Associates, the forensic accountant called in by Langbar's management last month to confirm whether the group had £365m in cash. Kroll found it did not, and the news looks set to leave UK institutional investors out of pocket to the tune of £16m.

Langbar said yesterday: "Kroll has not been able to establish the existence of, nor verify the company's entitlement to, any relevant assets at any time in the company's history."

The statement will shock City institutions such as Merrill Lynch, Gartmore and Ennismore Fund Management. They built up substantial shareholdings in Langbar in the autumn, paying 40p to 60p a share, believing the company had 220p a share in bank accounts in Brazil and the Netherlands.

But while these institutions and countless private investors were buying into Langbar, it emerged Mariusz Rybak, the company's founder and former chairman, had been selling down his shareholding aggressively. His share sales, at 55p to 65p, prompted calls by institutional investors for the Kroll investigation. If Langbar had 220p a share in cash, they wanted to know why the founder was selling at such low prices.

Lambert Financial, an investment company for 2000 Jewish families, is also caught up in the affair. It is led by Abraham Arad, a former adviser to the Israeli Prime Minister's Office, and has been a major investor in the company from the start.

Langbar started life as Crown Corporation, which raised £140m in an AIM listing at 140p in 2003. The float of the Bermuda-registered company was handled by Nabarro Wells, the nominated financial adviser, Insinger Townsley, the stockbroker, and Lawrence Graham, as solicitors. The company originally said it planned to invest in undervalued North American companies but instead secured construction contracts in Argentina worth £365m. In June last year it sold them to Lambert Financial, who acted as its partner in the region.

Another strategic U-turn followed. Langbar said it would use the profit made in Argentina to fund a move into the Russian oil and gas business. But investors lost confidence in the company's constant changes in direction and its shares were left languishing at 13p. In June this year, Stuart Pearson, a former corporate financier at the accountants Baker Tilly, was appointed chief executive of Langbar. Before taking the position he conducted extensive due diligence, including trips to Brazil where the company's cash was held on deposit in the form of interest bearing promissory notes.

To help the company get Langbar's money out of Brazil, Arden Partners, its new broker, arranged a £4.3m fundraising in August at 48p. By September, Mr Pearson said he had transferred £160m of the group's cash from Brazil to ABN Amro in the Netherlands, and Langbar shares soared to more than 95p. The remaining £210m was to be brought to Europe later.

Neither Mr Pearson nor Mr Rybak, who is based in Monaco, could be contacted yesterday. In a statement, Langbar said it has instructed its lawyers to "explore every avenue available for the recovery of its assets and to pursue vigorously any parties who may have been involved in unlawful or improper activity in relation to the company or its assets". Langbar shares will remain suspended and Kroll is expected to complete a report for the company.

Before setting up Langbar, Mr Rybak, 52, formed a series of technology companies in Canada, where he was known in the local press as the "Baltic Barracuda" because of his aggressive business style.