The long-awaited trial of four men accused of fraud at a Birmingham company founded by one of the city’s best known businessmen has started in London.
Patrick Cryne, Stephen Graham, Timothy Whiston and John Whelan are all accused of conspiring together to make statements, promises, or forecasts about iSoft which they knew to be misleading, false, or deceptive
The software company was founded in 1994 by the late Roger Dickens – who founded Birmingham Forward and was a past president of the Birmingham Chamber of Commerce – while he was senior partner at KPMG along with Mr Cryne and Mr Graham. Mr Whiston went on to become chief executive while Mr Whelan was finance director at the firm.
A management buy-out followed in May 1999 and in July 2000 iSoft was floated, raising £16 million with the company becoming one of the hottest stocks of the technology boom which took Britain by storm in the early years of the last decade.
The company continued to go from strength to strength, opening new offices at Aston Science Park and enrolling Lord Digby Jones, then director-general of the CBI, as a non-executive director between May 200 and June 2004.
However, in 2006, the company called in the Financial Services Authority after its own investigations found evidence of irregularities during the financial years ending April 2004 and 2005. The revelation forced iSoft, which was worth £1 billion at its stock market peak, to restate its accounts by £174 million and led to the resignation of several key executives. Mr Dickens had already stood down as chairman of the company as he fought a losing battle against a lengthy illness. He died in January 2006.
According to the trial at Southwark Crown Court, the four men plotted to create ‘‘huge discrepancies’’ in the published accounts of iSoft to deceive investors which enabled Mr Cryne, the firm’s CEO, and director of operations Graham to become multi-millionaries.
Finance director Mr Whiston and erstwhile group financial controller Mr Whelan were also highly paid and expected to net annual bonuses based on the company’s apparent success, jurors heard. Their conspiracy was hatched in a ‘smoke-filled room’ and a ‘‘mass of inferential evidence’’ would drive jurors to conclude they were in cahoots, prosecutors claim.
They allegedly claimed they had won a major contract to supply information systems to Irish Hospital Information Systems before April 30, 2005, when they were directors of the company.
They also ‘‘materially misstated’’ interim reports and year-end financial statements and accounts as well as making ‘‘materially misleading, false or deceptive statements, promises and forecasts’’ in respect of iSoft, the court heard.
Mr Cryne is not standing trial alongside the other men having ‘‘become unwell’’ since proceedings began against the four alleged conspirators.
The men began their deception by publishing falsified annual and half-yearly accounts, knowing the market would use them to judge the firm’s success in a scam that began in October 2003 and ran for nearly three years, said prosecutor Richard Latham QC.
Mr Latham said jurors could be sure that the three defendants had conspired with Mr Cryne as it was impossible for the scam to have worked without all four’s ‘‘active agreement and participation’’.
Mr Latham told jurors at Southwark Crown Court that a ‘‘forgery kit’’ was discovered in the offices of Mr Whiston and Mr Graham. He said three documents had been recovered that had been used to fake the signature of an Irish Health Service executive.
The four men had taken the signature of Pat McLoughlin – the CEO of Ireland’s South Eastern Health Board (SEHB) – from a ‘‘heads of term’’ agreement and, using a photocopier, transferred it onto a draft contract which they then passed to auditors claiming it to be the actual contract, he said.
“Whoever the actual forgers were of these documents the bogus contract must have been provided to Robson Rhodes [the firm’s auditors] under the immediate supervision of Whelan.
“We suggest that he in turn would never have embarked on such a fraught course without the approval of the other defendants. We suggest this simply could not be any one of the defendants by themselves”
Mr McLoughlin told the court iSoft were applying pressure to push through a contract agreement by October 31 but said that this was not possible but he was prepared to sign heads of terms which were not legally binding.
“I had no difficulty indicating our willingness to sign a contract, but I wanted to make it clear this had no legal effect,” he said. When Mr McLoughlin was shown a copy of the bogus contract and asked if he had signed it himself he replied: ‘‘No, I did not. I did not have the authority to. The only document I authority to sign on behalf of the health authorities was the heads of agreement.’’
Another witness, Milan Radia, one of the founders of UK stockbroker Bridgewell’s research team, told the court the defendants’ efforts to dupe investors avoided ‘‘dramatic’’ financial consequences. He was asked by prosecutor Richard Latham QC what would have happened in October 2003 if iSoft announced revenue of £20m and a significant loss rather than a significant profit and revenue of £40m.
Mr Radia said: “They would have to make a pre-announcement, a profit warning.”
Mr Latham asked: “What impact would that have had on its shares?”
Mr Radia said: “It would have had a dramatic impact to share prices. It is impossible to assess the percentage move but it would have been a substantial drop.”
Lord Jones, who was a non-executive director at iSoft and sat on its remuneration committee, was asked at Southwark Crown Court when he appeared as a prosecution witness to comment on remarks he allegedly made about Mr Whelan when he was then finance director.
Alistair Webster QC, acting for Mr Whelan, put it to Lord Jones that he had said that ‘‘finance directors like him were really ten a penny’’.
Lord Jones said he did not recall saying such words but added: ‘‘I’d say there are a lot of people like him who can be appointed to companies like iSoft.’’
The accused each deny conspiracy to make misleading statements promises or forecasts, contrary to the Financial Services and Markets Act 2000 and section 1 of the Criminal Law Act.
The trial continues.