The lifting of reporting restrictions today allows the announcement of the outcome of two linked trials relating to Mezuzah Incorporated, an investment vehicle used in 1997 to conduct a $16 million fraud.
Summary
The first trial in this Mezuzah case concluded in October 2002. On 11 October 2002, the two defendants - Thomas Pilz and Richard Walker - were jailed for theft of US$16 million through a fraudulent high yield investment scheme operated through the use of solicitors' client accounts in the UK and the USA.
A court order prohibited publication of this outcome until today in order to protect the fairness of the second proposed trial. The indictment in the first trial named Dariusz Maruszak as the architect of the theft and a joint entrepreneur with Pilz and Walker. However Maruszak was at large and later contested extradition proceedings and it was not practically possible to try him with Pilz and Walker.
The second trial, which opened in September this year, concluded today. There were six defendants charged with laundering $11 ½ million of the proceeds of the theft. Five stood trial and have been judged to have no case to answer. Charges against the sixth were dropped earlier this year.
Background
During 1997, a number of investors attracted by representations made by Thomas Pilz, Richard Walker and Dariusz Maruzsak that significant profits were to be made in so called "high yield investment programmes". Investors placed a total of US$16 million in an account at a London solicitors firm, Swepstone Walsh for this purpose. The original scheme, it was alleged, was proposed by Maruszak and delegated to Pilz and Walker for execution. A scheme was devised by them whereby a company registered in the British Virgin Islands, Mezuzah Inc., was put forward to act as the pooled investment vehicle for the investors funds.
The funds were then sent to a client account of a firm of New Jersey attorneys called Levitan & Frieland. The signatories to the client account were Pilz and Walker. Thomas Pilz & Associates were introduced to Levitan & Frieland as a business wanting to open a client account in order to transfer money from the UK to the US supposedly to have funds available to start business in America. It was not disclosed that the money was the pooled Mezuzah investment fund.
When investors became concerned about the lack of information about their investments, both Pilz and Walker gave reassurances that the money had been invested in a banking trade in January 1998. The reality was that they had conspired to defraud the investors and that they, their family and their friends benefited from the illegal dissipation of the Mezuzah consortium funds. The legal proceedings that arose in relation to Pilz and Walker are detailed below. (See Trial No.1).
The investigation also examined the activities of a number of other persons in relation to the laundering of the stolen funds. Six persons were charged with various offences and were tried separately to Pilz and Walker. Details of this trial are given below. (See Trial No. 2).
Trial No. 1
The SFO investigation into Mezuzah commenced in March 1999, following a referral from the Office of Supervision of Solicitors. As the investigation uncovered an increasingly complex set of factors, it was decided to split the investigation into two linked sets of proceedings, Pilz and Walker being the first.
Dariusz Maruszak was believed to be the architect of the overall fraud. However his location was unknown.
In the absence of Maruzsak, Pilz became the principal suspect. He was arrested in Switzerland on 25 June 2001 and extradited to the UK to be charged six months later, with Walker, with conspiring to defraud investors during 1997/98 of $16 million. Pilz is a German national; but was resident in Switzerland; Walker is a British citizen.
Pilz pleaded guilty on 27 September 2002 at Southwark Crown Court to one count of theft. Walker similarly pleaded on 4 October 2002. They were sentenced on 11 October; Pilz to 4 ½ years' imprisonment and Walker to 3 years.
Pilz was ordered to pay over £1 ¼ million in confiscation. Walker was already a serving prisoner, having been convicted of a separate fraud matter prosecuted by the CPS. He was subject to confiscation proceedings conducted by the CPS. The judge further ordered that the confiscated sums should be provided to meet investor compensation claims. The funds were to be apportioned pro rata between the victims, which included the Solicitors Indemnity Fund. Pilz' appeal against sentence was rejected in April 2003. Walker did not appeal his sentence.
The above matters were not published at the time, by order of the court, as related proceedings had been instituted against other persons who were yet to be tried. (See Trial No. 2).
Trial No. 2
The overarching investigation also examined the further dissipation of the funds. The further theft and laundering of the funds was conceived in yet another high-yield investment scheme. Six suspects were subsequently charged with various offences revolving around the laundering of $11 ½ million from the Mezuzah funds.
On 24 September 2002, the following defendants were charged in relation to the dispersal of the funds:
- Carlo Spetale. A British national.
- Anthony Feldman. "
- Peter Brewer. "
- David Lakeman. "
- Dariusz Maruszak. A Polish national, resident in the USA from whence he was extradited.
- Elzbieta Koberstein A Polish national, resident in Germany from whence she was extradited.
On 16 July 2003 the Serious Fraud Office decided to discontinue proceedings against Koberstein. The case against Koberstein, believed to be Maruzsak's girlfriend, centred around a wholly unsubstantiated claim that she incurred US$300,000 in business expenses undertaking work on behalf of Dariusz Maruszak. The late provision of receipts, in purported justification of this sum, led the Crown to re- assess whether there was a case to answer against her.
The trial of the remaining five defendants opened on 7 October 2003.
The Serious Fraud Office alleged that Maruzsak, having been involved at the inception of the initial theft from Swepstone Walsh, dishonestly obtained US$ 11 million which was transferred to the solicitors client account at John Thomson & Co in Beckenham, Kent.
First of all, however, $ 11.5 million was sent from Levitan & Frieland on the instructions of Pilz to the client account of Anthony Feldman & Co solicitors, London. Mr Feldman was a single practitioner solicitor. He dealt with the receipt of these funds. Spetale acted as proxy for Pilz. Spetale agreed that the funds should be transferred to a company called Citadel Management Inc and that they would enter into an agreement with some third party to invest the funds in a high yield investment programme. The directors of Citadel were Feldman (through a nominee company), Brewer and Lakeman. Spetale authorised payments of US$ 420,000 to a commercial project organised by one of his associates.
It was through an agreement reached between Citadel and Equal Ltd (Dariusz Maruszak's company) on 14 April 1998 that the Serious Fraud Office alleged the stolen money (now only US$ 11 million) was laundered back into the hands of Maruzsak. Maruszak further instructed the funds should be sent on to another company International Invest Incorporated ("IIC"), which he had an association.
The defendants were alleged to have control, at different times and in different ways, over the stolen funds on their way from Pilz to Thomson and to have known at the time that it was stolen. The proof of the theft was proved by the pleas of guilty of Pilz and Walker in the first trial.
It was HHJ Fingret's view that the second trial depended heavily on the evidence of John Thomson, Maruszak and Equal Ltd's solicitor. Thomson was called to give evidence for the prosecution soon after he had been prosecuted (by the Crown Prosecution Service) for stealing from client funds. Thomson pleaded guilty to theft from client funds in August 2003 and was serving a suspended sentence of imprisonment. He had been introduced to the idea of high-yield investments by an associate of Maruszak and used probate accounts for this purpose. The client funds were dissipated and lost. The Judge concluded that, without the evidence of Thomson, the case was not sustainable.
In the light of the Judge's comments, submissions of no case to answer were made on behalf of all defendants. On 18 December, the Judge ruled that there was no case to answer. HHJ Fingret said, "The test I have to apply is whether the prosecution evidence, taken at its highest, is such that a jury, properly directed, could not properly convict". He said, "The credibility of the [prosecution] witnesses is at the root of this case." In this he was referring principally to the evidence given by John Thompson, and somewhat from James Robinson formerly of Swepstone Walsh solicitors.
In concluding his reasons for judging in each defendant's case that they had no case to answer, HHJ Fingret commented on the management of the case. He said, "This case was scrupulously investigated, meticulously prepared and fairly and thoroughly presented by the Crown. It was properly brought. The Crown could not possibly have anticipated what was to happen".*
*(He was referring to the cross-examination of Thomson and the discredited value of documents emanating from Thomson and Co.)
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