TIME EUROPE
FEBRUARY 21, 2000 VOL. 155 NO. 7
SPECIAL REPORT
The Decline and Fall of Lloyd's of London
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What has been the result of this welter of lawsuits, allegations, investigations and hearings? So far very little and "Orator" Bradley is worried. "I've gone to all this trouble, gone through all these papers, verbiage, repeated these things over and over to various investigators and nothing ever happens," he muses. Seated behind the closed doors of a secure room in the U.S. Embassy on London's Grosvenor Square, Bradley is in the third hour of interrogation by a senior American prosecutor, Assistant U.S. Attorney Michael Tabak, and two fraud investigators, John S. Ellis Jr. and John M. Marsh. The American team decided to move its questioning into the security of the embassy after hearing a rumor that the outside office where it had intended to meet witnesses was bugged.
"I can hear the phone call now," Bradley is saying. "'Mr. Bradley, nice meeting you, but we've decided not to proceed.'"
Tabak rises to his feet, positions himself behind Bradley's chair, and grasps the older man's shoulders.
"Roger, that will not happen in this case. I can assure you we are going right to the end."
Will they? It's hard to dismiss the Orator's doubts. Consider all the other investigations: the sec probes; the British police and Serious Fraud Office investigations; the Parliamentary inquiry; the inquiries by officials in New York and other states across America; the numerous lawsuits. So far nothing has come of all this probing. Houdini-like, Lloyd's has escaped all substantive accountability for the actions that have ruined thousands of investors.
After reviewing evidence of fraud gathered by the police, and after assembling extensive further evidence from Bradley and others, Britain's Serious Fraud Office (often derided as the "Seriously Flawed Office") decided in 1995 that there was "insufficient" evidence to support prosecution. Yet just prior to the SFO standing down, a British judge, Sir Peter John Creswell (who will be presiding in the upcoming Jaffray case), had found that a former deputy chairman of Lloyd's, Stephen Merrett, had "deliberately concealed" the true condition of his syndicates and "kept the Names in the dark," exposing them to potentially huge liabilities. In the case, a civil action brought by angry Names, Creswell criticized Merrett for false statements and offering "unsatisfactory and unconvincing evidence." Merrett told Time he had done nothing wrong (see box).
The Creswell ruling was "as damning an indictment as you can imagine," says a London lawyer and former senior law enforcement official. Yet the SFO declined to bring criminal charges against Merrett or attempt to use him as a witness in prosecuting other Lloyd's officials. The SFO's reluctance to prosecute Lloyd's angered former Lloyd's chief executive Davison, who said later that he was "extremely indignant and disappointed at this."
A top police official insists that "it would have been easy to put a case against Lloyd's together. All it needed was will on the part of the government," which was not forthcoming. Ironically the government official in charge of the SFO at the time was Attorney General Sir Nicholas Lyell, who was a Name himself and who stood to lose if Lloyd's moved against him. It is understood that Lyell ultimately settled his final debt to Lloyd's for $32,000.
Because of his Lloyd's membership, Lyell didn't participate in decisions on whether to prosecute Lloyd's, leaving them to his second-in-command, the Solicitor General, Sir Derek Spencer who has not responded to Time's questions about the SFO decision.
The parliamentary committee that investigated Lloyd's proved nearly as impotent as the SFO. The committee had very limited staff, no power to subpoena either people or documents, and no power to compel voluntary witnesses to tell the truth. A request for a broader, deeper investigation was rejected by the government of John Major in 1995. Like the Thatcher government before it, the Major regime may have feared that an aggressive investigation of Lloyd's would damage the reputation of the City of London, causing it to lose business to other European financial centers.
The Major government, already skidding in the polls, may even have feared for its own existence. At least 50 Tory M.P.s were Names and a hefty number were potentially under water. Had Lloyd's forced them into bankruptcy, Major's slim majority would have been threatened, since bankrupts cannot sit in Parliament. "The numbers were such that it would have brought about the collapse of the government--there was no doubt about it," says the former Lloyd's insider. A leading member of the Conservative Party recently told Time he believed an unspoken understanding existed between Lloyd's and the Tory government that their fate was intertwined.
In the U.S. the staff of the sec wanted to proceed with both of its inquiries. However, they were stopped abruptly in 1992 by the Commission itself, led by Chairman Richard Breeden, not long after British Prime Minister John Major spent a weekend with President George Bush at Camp David. Had Major persuaded Bush to call off the investigation, as British press reports speculated at the time? Both Bush and Major, through spokesmen, say they don't recall discussing Lloyd's. Former Chairman Breeden, who had been a key White House aide under Bush, told Time that the sec decision against proceeding "was not because Mr. Major and Mr. Bush said anything to each other" but because the SEC decided that disputes between Names and Lloyd's should be resolved in English courts. "We didn't make a judgment that the way (Lloyd's) allocated risks among syndicates wasn't sleazy," Breeden told Time. "We didn't make a judgment that their practices were honest."
Even though federal Judge Robert Payne of the U.S. District Court in Richmond, Va., described the Lloyd's debacle as "one of the most far-reaching and serious insurance frauds of record anywhere," U.S. courts have yet to make any headway against Lloyd's. The 11 states in the U.S. that had sued Lloyd's reached a settlement with the institution in 1996 which was widely viewed as a wrist-slap victory for Lloyd's. State regulation of securities and insurance in America historically is weak. Most lawsuits by private investors against Lloyd's in the U.S. were stymied, too. The fraud allegations for the most part never got a hearing because Lloyd's invoked the clause it had slipped into its contracts with investors beginning in 1986 calling for any legal disputes to be litigated in England. Even though the investors argued that they had been tricked into signing that clause--and Americans' rights under U. S. securities laws generally cannot be waived by such contracts--U.S. appellate courts ruled that the contracts were valid and that Names had to sue Lloyd's in England. When they got to England, however, they discovered that suing Lloyd's successfully in its home country is very difficult, though there have been a few successful suits against individual Lloyd's syndicates.
In Britain, Lloyd's has not only been protected by its own act of Parliament but by real fear of its clout within the establishment, clout that many insist makes Lloyd's dangerous to cross. "Lloyd's has more power than the government," says a knighted landowner and Lloyd's victim, who, like others, refuses to speak for attribution. "We are scared. People are frightened. This is not the England I knew."
The fear has been fueled by a series of bizarre and sinister episodes, including threats and intimidation. An anonymous telephone threat was received by John Melville Donner, the retired Lloyd's executive and investor who was one of the earlier Names to accuse Lloyd's of fraud. Inside Lloyd's itself, an employee with sensitive information got two anonymous calls advising him to keep quiet. He also received an envelope in the mail containing a handgun bullet, possibly a practical joke, possibly not. Another investor was threatened with "concrete boots" if he investigated the reasons behind his losses. Sensitive records have been destroyed, according to a computer programmer who used to work at Lloyd's. Files have been stolen from the offices of no fewer than six dissident Lloyd's investors or their lawyers in the U.S. and Britain. A burglar who broke into Evans' house in London ignored cash and other valuables and took only her laptop computer, its hard drive crammed with material relating to the dissident Names' upcoming court battle with Lloyd's.
Investigations haven't tied Lloyd's or its officials to any of these episodes and TIME has no evidence that links Lloyd's to them. But suspicions among some Names persist in part because, as former Lloyd's chief executive Davison found, Lloyd's has a long reputation for secrecy and for covering up negative information. And it occasionally has tried to purchase silence with favorable financial settlements for dissident investors.
Only now, with the Jaffray case about to begin, is Lloyd's facing the prospect of a serious legal challenge in which all its dirty linen will be hung out to dry. "Finally Lloyd's is in the dock, and will have to answer the tough questions it has been dodging for years," says former Name Clive Francis, a retired Royal Air Force pilot.
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