Guinness Share-trading Fraud – 1990

By | November 12, 2016

“Unjustifiable favours for friends and himself”

guiness-fraud

Ernest Saunders, centre. during the share-trading fraud

THE CRIME:

As with the Michael Milken (search the article) case, the Guinness scandal came to light after American trader Ivan Boesky (search the article) tried to plea bargain his way out of trouble. The Guinness Four — Ernest Saunders, Gerald Ronson, Sir Jack Lyons and Anthony Parries — attempted to manipulate the stock market on a massive scale to boost Guinness shares to enable a £2.7 billion takeover bid for Distillers, the Scottish drinks company. The board of directors of Distillers faced a hostile takeover bid and favoured the Guinness solution. Using $100 million raised by Guiness CEO, Ernest Saunders, Boesky invested it in shares to support the Guinness share price.

When questioned on other matters, Boesky mentioned the money and the American authorities passed the information on to the Department of Trade and Industry’s corporate inspectorate. Further investigation revealed that Saunders had done other secret deals and had not informed the Guinness board of his actions. The company had paid £38 million to 11 companies in six countries to buy $300 million worth of Guinness stock. Bank Leu, Switzerland’s oldest private bank, had bought half the stock. The four men were arrested and charged. In September 1990 all four were found guilty.

Saunders was jailed for five years for false accounting, conspiracy, and theft. Lyons was fined £4 million for theft and stripped of his knighthood. Parnes was sent down for 30 months for false accounting and theft. Ronson was jailed for a year and fined £5 million for false accounting and theft. Ronson, Parnes and Lyons were also ordered to pay £440,000 in costs.

WHERE:

London, England

WHEN:

1990

THE AFTERMATH:

On 16 May 1991 the convicts appealed against their sentences. All the verdicts remained but Saunders’s sentence was halved and Parnes’s was reduced to 21 months. At a second appeal, the convictions were again upheld. Bank Leu was forced to merge with Credit Suisse in 1990.

The Guinness share price increased before the takeover. On 28 June 1991 Ernest Saunders was diagnosed with the incurable Alzheimer’s disease and was released from prison. He has since made a full recovery.

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