Brokers fined for illegal KIO deals: SFA expels two who were paid pounds 1m to liquidate frozen Kuwaiti assets

RECORD fines have been imposed by the Securities and Futures Authority on two former stockbrokers for illegal share deals and other activities while working for the Kuwait Investment Office.

Anthony O'Sullivan and Lucas Van der Ploeg were paid about pounds 1m each to liquidate KIO assets after several governments had frozen Iraqi and Kuwaiti assets following the outbreak of the 1990 Gulf conflict.

They also worked with a former KIO European investment manager to skim off pounds 2m in commissions on share deals and divided the proceeds.

The SFA concluded its inquiry last year but a formal announcement was delayed by an appeal by Mr O'Sullivan, which was rejected by the SFA's appeal tribunal.

Mr O'Sullivan was fined pounds 200,000 and ordered to pay pounds 33,206 towards the SFA's costs. He has petitioned the High Court for leave to appeal. Mr Van der Ploeg was fined pounds 100,000 plus pounds 5,000 costs. Both have been expelled from the SFA.

Mr O'Sullivan was managing director and Mr Van der Ploeg head of trading at Sassoon (Europe), a broking firm 49 per cent owned by the KIO. After the 1990 freeze on assets Mr Trevor Ball, then the KIO's chief investment manager, asked the two men to liquidate DM1bn of Dutch and German investments through Sassoon Overseas, a company registered in Hong Kong.

The SFA did not know whether Mr Ball's action was authorised by his superiors at the KIO, but said that Sassoon was not aware of the liquidation. Mr Ball died in 1991.

Britain froze Kuwaiti assets within hours of Iraq's invasion, but Germany implemented the United Nations embargo more slowly. The DM1bn sale of assets by the KIO in Germany and Holland was to get through the net before it tightened, but the transfer of the cash proceeds to London was probably illegal under the UK freeze orders. These were gradually lifted as it became clear Kuwaiti funds abroad were managed independently of Iraq.

In a separate matter, Mr O'Sullivan and Mr Van der Ploeg teamed up with another senior KIO official to inflate share transactions, mostly in French stocks such as Euro Disney and Elf Aquitaine, carried out through overseas brokers between January 1991 and February 1992.

The money skimmed off, about pounds 2m, was paid into Swiss numbered bank accounts. About pounds 1m went to the anonymous KIO official and pounds 500,000 each to Mr O'Sullivan and Mr Van der Ploeg. Both brokers have paid back their profits from the share deals.

The tribunal described the arrangement as 'obtaining private and secret benefits from a dishonest and covert operation'. The tribunal added: 'We have no doubt that this was something about which Sassoon were at the time completely in the dark. In doing what he (O'Sullivan) did he was, in our judgement, dishonestly lining his own pocket at the expense of a company of which he was the managing director and senior executive officer, and displaying an utter lack of integrity.'

Mr O'Sullian and Mr Van der Ploeg have since paid back part of their benefits. On a third count, Mr O'Sullivan was found guilty of pocketing DM1.6m of commissions from an unnamed German bank, money which should have been paid to Sassoon. The SFO said: 'Mr O'Sullivan deliberately and dishonestly kept his employer in the dark about that arrangement also, and . . . acted to the prejudice of his employer who should have received the commission rebates.' The money has been paid back.

The scandal is just the latest of many to hit the KIO. Kuwait is still reeling from the dollars 5bn collapse in 1992 of Grupo Torras, its vast Spanish empire, amid allegations of fraud and secret political payments after the Iraqi invasion.

The KIO is also still negotiating with British tax authorities over allegations that it gained over pounds 600m in illegal tax breaks from a stake in British Petroleum.

The tough penalties and disqualifications and the repayments of the proceeds of the deals are likely to reinforce pressure for securities regulators, rather than prosecuting authorities, to take action more often on complex cases. This week the Serious Fraud Office dropped inquiries into the management of the Gooda Walker syndicates at Lloyd's, and handed the matter over to the Lloyd's authorities. The SFO was not brought in on the KIO case.

The SFA is the self-regulating organisation that oversees all the City's investment markets, including the Stock Exchange and futures markets. As a regulator it has had a more successful track record than the personal investment bodies such as Fimbra.