What would you do if you were accused of being a fraudster? Run for the hills or tough it out? Paul Sanders was one of the former directors of SSL accused of a complex financial fraud. It took him five years but he's emerged with defiance and without a stain on his name. Michael Taylor tells the story of this farcical trial and how it affected the career and life of one man
It was just a simple, rather curt letter, saying we are no longer pursuing a case against you for fraud. For Paul Sanders it marked an end of sorts in his five-year ordeal at the hands of the Serious Fraud Office (SFO), which had charged him and five others with making false accounting statements while Sanders was the finance director of SSL International, the healthcare group, then based in Knutsford, Cheshire. But it didn't feel like any kind of victory.There was no triumphant press conference on the steps of the court, no celebratory party, just a letter from an acting case controller called Seema Popat, with no hint of an apology.
The commercial world moves quickly. Those who don't keep up get left behind. New technology, new procedures and the momentum of business life make it hard to take a sabbatical from the corporate fast lane. The legal process of fraud cases, however, moves at a snail's pace and neither of these self-evident facts have helped Sanders.
He's seeking to get his life back on to some kind of track after facing up to serious fraud charges that carried a maximum sentence of seven years in gaol.
Even before those serious charges were brought against Sanders and his colleagues in late October 2003, he'd faced questions from investigators. "I didn't face lengthy questioning and at the time I feel that I was only interviewed because as the ex-finance director they had to," he says. "Suffice to say I cooperated."
During this time Sanders had taken less than a passing interest in what had gone on at his former company. He'd left in late 2000, but because the SFO was investigating allegations that the company had overstated profits and sales going back to 1999, he was drawn into a process that seemed to gain a momentum all of its own, and his world was turned upside down.
The case itself generated over a million pieces of paper. The lawyers employed by both sides included some of the top names in the corporate world - Eversheds, Burton Copeland, Herbert Smith, Cooper Kenyon Burrows and JMW - and the files on the case would have piled higher than a city centre office block.
Insider has a large file of papers on the case too, but it boils down to this: did Iain Cater, Dieno George, Paul Sanders, Christine Davenport and Brian Ruane from SSL, by engaging in a common practice known as "trade loading", then publish false statements that misled shareholders?
And were false invoices created in collusion with Colin Wilson, the then purchasing director of AAH, a customer of SSL? Or was it simply a legitimate use of "trade loading", where profits are booked on goods shipped to wholesalers?
The SFO says the case has cost £3837,000. The costs for the defendants in respect of the voluntary bill so far have come to £3298,000.
SSL did not wish to comment other than to say that this all happened a long time ago and did not involve any employees of the company.
Fighting these charges took time for Sanders too. And, arguably, the slow progress of justice and the sheer amount of emotional and intellectual energy that he expended on the case has cost him two of the jobs he's tried to juggle alongside the fight to clear his name. These include the high-profile finance director's job at Baltimore Technologies in Dublin and a board position - with equity - at Touchstar Technologies, which he lost, a business that was later sold for £311m.
Sanders has an identical twin. But it's remarkable how much older Paul looks than Damian, a partner at Deloitte in Manchester. His face wears the look of a man who's had a tough few years.
And, when you're in your late 30s, these are important years to be taken from you. This is what happened to Paul Sanders.
When Paul Sanders joined Seton Healthcare in November 1997 he was joining a business on the move. Under dynamic chief executive Iain Cater, the business was on the acquisition trail. Within a short space of time, the acquisitions of Scholl, the business that makes sandals, and in July 1999, London International (LIG), owner of the Durex brand, established the company as a darling of the City and one of the jewels in the crown of the North West.
Indeed, what the management team achieved during these years was to create a major international healthcare business, through a series of mergers that now represent the core of the group retained by the new management. As group finance director, Sanders worked on these acquisitions and his experience at Arthur Andersen had equipped him with ideas about corporate finance.
"Going straight from the profession, where I predominantly had been a tax adviser, it was a great learning experience," he says. "Due to my background, my main focus and contribution at Seton/SSL was in the areas of treasury, funding, tax and structuring.
"This was obviously important during a three-year period when the group grew from a turnover of around £3100m to around £3700m."
When he left SSL in 2000 to join Baltimore Technologies in Dublin, he had a ringing endorsement from Cater who was "extremely sorry" to lose him. The chairman, Stuart Wallis, added that Sanders had played his part in the remarkable success story. "His experience of corporate finance has been invaluable to the group. We wish him well in his future career," said Wallis.
The success begun to unravel like a well-wrapped bandage after Sanders left. His replacement in February 2001 was Garry Watts, a KPMG partner until 1995, who had also worked in the healthcare industry for a business called Celltech Medeva.
In November the first signs of trouble for SSL appeared. On the face of it results for the six months to September 2000 were good. But by February 2001 the situation had worsened and the first of a series of profit warnings were issued. Cater was "invited to step down" as chief executive, ending his 20-year career with the business. He was replaced initially by Dieno George, the managing director of continental Europe for SSL.
In May 2001 chairman Wallis announced to a stunned City that £363m of excess stock was held by customers. This would be written off leading to a one-off loss of profit of £350m. This followed a review by independent investigators from KPMG and law firm DLA looking at restating the results from 1999 and 2000. Incumbent auditors, Andersen, qualified the adjustments, but the report was passed to the SFO. George and another executive, Graham Collyer, announced they were also to leave.
The problem arose because of the practice of trade loading. SSL would book profits on goods shipped to wholesalers - there would then be less room for competitors' products in the warehouses and therefore there was a strong chance this would eventually get through as consumer sales. It was an established practice and was not illegal.
"Trade loading was common practice for FMCG (Fast Moving Consumer Goods) businesses and healthcare companies in particular. Seton engaged in trade loading from the 1980s. Commercially it makes sense if you get the amount right. If a wholesaler is holding your stock there is less room for competitors' products," says Sanders.
Wallis also issued a restated forecast of expectations for the year for profits of £390m. The results were better than that. Wallis was unhappy with the accountaing policies the company was using. As chairman he approved the accounts as a board member, which included the accounting policies; the trade load was discussed at almost every board meeting following the LIG merger but his course of action triggered the chain of events that followed.
Sanders, meanwhile, was having troubles of his own at Baltimore. He had joined as finance director, but had stepped up to be acting chief executive when the incumbent, Fran Rooney, resigned in July 2001, following the spectacular bursting of the dot-com bubble.
By October of that year, when he'd been in the business for less than 12 months, Sanders also resigned. There had been a cost-cutting programme to oversee, just as he had arrived, rather than an exciting acquisition campaign.
"When the press coverage of the SSL investigation broke, Baltimore was a higher profile company than SSL and was facing difficulties," says Sanders. "My position was untenable, which I accepted. It was made more difficult by the fact that KPMG were the auditors of Baltimore and had by then also become auditors of SSL."
Through all of this Sanders has been well regarded and well liked among the business advisory community in Manchester. A modest and thoughtful man with a soft Scouse accent, he certainly didn't fit the caricature of the brash fraudster that accounts of cases like this usually require. At the end of 2001 he moved his family back to England and was put in touch with contacts, which led to him joining a promising young business called Touchstar in early 2002.
But the case was still a constant hum in the lives of all the defendants. "For the best part of two years I was working at Touchstar, a fledgling technology business backed by LDC. It had been in a distressed state, but we were turning it around. At the back of my mind I knew there was an investigation, but I was only questioned once, in July 2003," he says.
In November 2003 Sanders appeared with the other five accused at Macclesfield Magistrates Court, charged with publishing false statements relating to the finances of SSL over a two-year period ending in September 2000. Their pictures were splashed across the national press and the reality of the case hit home. He was unable to hold down his job at Touchstar because of the time it would take for him to prepare for the case.
"We'd done everything we could to cooperate and to accelerate the legal process. I answered every question they asked of me, but the process seemed painfully slow and out of my control," he says.
It actually took a full year for the dismissal hearing at Chester Crown Court to begin in December 2004. But though the SFO got its day in court, its humiliation was only just beginning. A jury never got to pass a verdict on the evidence and Judge Stephen Clarke dismissed the charges against Sanders, Cater and George on 9 December 2004.
In a withering verdict on the evidence presented by the SFO, the judge said the Crown had been unable to prove that the accounts were misstated, never mind that there was intent or knowledge of any wrongdoing on the part of the three senior directors.
As set out in the judgements, the prosecution had to prove that accounts were misstated, that the misstatement was material and that the defendants had knowledge and that they had intent to deceive.
The prosecution, as emphasised by Judge Clarke, failed on the first hurdle but he also suggested that the prosecution would have even more difficulty with the requirement of knowledge and intent.
"The court made it plain at an early stage... that the Crown would need to prove the falsity of each of the "false' sales and it has singularly failed to perform this throughout this case," he said.
Judge Clarke also said: "The evidence in this case points overwhelmingly to the company indulging in trade loading, it was a common feature of how Seton conducted their business prior to merger with Scholl, and also common to LIG. The practice continued when SSL was created. The evidence of Garry Watts shows a trade loading position of £353.4m at March 2000 and £362.9m at March 2001. By this time, Mr Cater had left the company." Sanders had left in November 2000.
But while the case against Sanders, Cater and George was dismissed, there was a blanket ban on media coverage of the trial, because there were still outstanding charges against Davenport and Ruane for allegedly corruptly giving Wilson, the sales director of AAH, two payments of £375,000 for not disclosing the true nature of invoices raised by SSL.
Those charges were also dismissed in June 2005. The judge, in linking the two cases, said: "The prosecution's evidence as a whole is not sufficient for a jury to properly convict."
Left seething from Judge Clarke's dismissal of its case, the SFO adopted an unusual next step. It applied for a voluntary bill of indictment, citing fresh evidence - an independent expert witness report from David Medland, a forensic accountant from RSM Robson Rhodes in London - it claimed would have been too expensive to have done for the initial trial. They also said that Judge Clarke "fell into error" by not recognising the accounts were false.
But in December 2005 the application to effectively kick-start the whole process again was also dismissed, this time in the High Court in London by Mr Justice Pitcher. He said: "I have no doubt that this application is unsound in principle and should be refused."
Sanders didn't have to attend this hearing, but he did. And the former chief executive, Iain Cater, took a four-hour flight from his home in Portugal to attend a meeting that lasted less than three minutes. They wanted to hear that their ordeal was over and to retire for a celebratory drink with their respective legal teams.
Cater issued a statement blasting the conduct of the SFO. The others have maintained a dignified, though relieved, silence. Until now.
In dismissing the first case against Sanders, Cater and George, Judge Clarke made an observation that rings so true: "One does not get away from the fact that a lot of people have to live with this hanging over their heads for many, many years. It puts their life on hold, does it not? Sometimes we just pay passing lip service to that."
Sanders has started the process of getting on with his life and the slow process of rehabilitation. He's been doing consultancy work for a few businesses.
"Suffice to say my levels of determination and resilience have improved particularly as I have had to work throughout the case to support my family! During the process a friend said to me that the measure of a man is not what he achieves but how he deals with adversity. Although it is a bit dramatic, I am sure that there is some truth in this," he says.
"Although the last five years have been difficult and challenging, I've gained invaluable experience. Recently my time has been focussed on acquisitions and disposals, which I have found rewarding and have enabled me to add value," he reflects, optimistically.
The defendants, it should be emphasised, were awarded their costs. A Directors and Officers insurance policy also covered their exposure. But Sanders, more than anyone, understands that the most important thing he has lost is not money, but time.
He also believes he should have the right to have another go, without the obvious stain on his character that such a case could potentially still bring
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