Another setback for Serious Fraud Office as trial collapses: Investigators passed confidential information to City law firm

THE SERIOUS Fraud Office faced fresh embarrassment last night after an Old Bailey judge ruled that three businessman facing charges of fraud had no case to answer. Labour renewed calls for the SFO to be replaced with a centralised body for prosecution of financial crimes. One MP described the present system as 'worse than useless'.

It was disclosed that SFO investigators working on the prosecution in yesterday's case passed confidential information to a City law firm. This is the third case within a month for which the SFO has been criticised . Last week, Roger Levitt, a financial adviser, was sentenced to 180 hours of community work after a plea bargain with the SFO. He pleaded guilty to one charge of fraudulent trading following the collapse of his pounds 150m company. Shortly before that, Terry Ramsden walked free after admitting a pounds 90m fraud.

The three men freed yesterday - an Australian financier, Malcolm Johnson, who was extradited from Vienna to stand trial; Mungo Park and Alex Dann - were charged with fraud and theft connected with the sale of shares in an allegedly phoney US company. The trial of two stockbrokers charged with involvement in the same share scheme collapsed earlier this year. It has emerged that SFO investigators passed information regarding Mr Johnson to Nicholas Brook, of the City law firm Clifford Chance. The information is contained in a file note which is in the possession of the Independent.

Before taking up his post as director of the SFO in March 1992, George Staple was head of litigation at Clifford Chance. The Serious Fraud Office refused to make any comment last night.

In court, Mr Johnson's barrister, Robert Marshall-Andrews QC, called for 'full details of the information passed between the SFO and Clifford Chance' to be made available. While the SFO was pursuing its investigation of Mr Johnson, Clifford Chance was bringing a civil action against him.

In the file note, dated 21 May 1992, Mr Brook writes that an associate of Mr Johnson's 'is regarded by the SFO as a 'minder' for Mr Johnson and may have been involved in at least one murder related to Johnson's business'. Mr Johnson said the SFO's suspicions were unfounded. Officials had no business sharing information with lawyers acting against him on an unrelated matter.

The disclosure is not the first breach of confidence by the SFO, nor the first time its activities have caused concern. An SFO lawyer was accused this year of forging a letter said to be signed by Sir David Steel, the former Liberal Democrat leader. He was told the letter was an 'April Fool'. Last year, an accountant on secondment to the SFO was jailed for trying to sell confidential documents.

These embarrassments follow a long and well-publicised series of imploding prosecutions: the second Guinness trial failed to secure any convictions, as did the year-long Blue Arrow trial.

The failures have been most widely noted, but the SFO has also had considerable success. It did bring Peter Clowes to book for robbing pounds 100m from his investors.

Alistair Darling, Labour's home affairs spokesman who has called for an urgent review of the activities of the SFO, said last night: 'We must have a new centralised body - not the SFO. The Government must recognise that the public are losing confidence in the system. If they don't, then the system is worse than useless.'