Thanks to the reader who sent another partying Prag pic. More welcome, obviously.
The Serious Fraud Office has arrested seven people in dawn raids as it launches a criminal investigation into the suspected theft of £66m of client money from collapsed law firm Axiom Ince.
Early on Tuesday morning more than 80 SFO investigators and Met police officers bashed doors down at nine locations across the south of England to grab their targets and carry out searches.
The ongoing liberty of Pragnesh Modhwadia, Axiom’s founder and sole shareholder, has left ROF commenters baffled after he admitted spending most of the missing money. However, his lawyer Timur Rustem is reported to have confirmed that Modhwadia was not among the seven, though his home was searched.
"I can confirm that the SFO conducted a search this morning of our client's address," Rustem said in a statement. "Mr Modhwadia was cooperative as he has been from the outset of this investigation."
Axiom Ince fell into administration in October after the SRA closed it down, putting 1,400 jobs at risk, leaving creditors in the lurch and raising the unpopular prospect of a £500 bill for every solicitor in England & Wales.
Members of the profession had demanded to know when the SRA first became suspcicious of Modhwadia, and whether it had permitted him to buy up two much larger firms, Ince Gordon Dadds and Plexus, after it had begun investigating him.
Following the arrests, the SRA addressed its critics by disclosing that its officers were the first to discover something was amiss, and only in July when they visited the firm to review the purchase of Ince Gordon Dadds. A trip was deemed advisable because Axiom was much smaller than Ince and had no experience in shipping law, Ince’s specialism.
The SRA said there had been complaints about Axiom in the past but “nothing out of the ordinary”. The regulator even visited the firm last year when it self-reported a matter relating to its immigration work.
It raises the possibility that, as the firm’s COLP (and COFA, and MLRO), Modhwadia himself called them in and showed them round while sitting on an enormous 'discrepancy'.
In late June, as Modhwadia prepared to celebrate the Ince merger in lavish style by flying staff to London for a huge party, the SRA notified him that it was coming to check over the merger on 25 July.
During its visit SRA forensic investigators “identified the issue of the significant shortage in the client account”, said the SRA.
The nature of the suspected dishonesty “was sophisticated and included falsified bank statements and letters”, and uncovering the scale of the alleged crime took “further digging behind what on the face of it looked like well-ordered accounts”.
Instead of fleeing to a private island with no extradition treaty, Modhwadia pushed back, and documents filed with the court as part of Axiom’s claim against him reveal the lengths to which he allegedly went to disguise the fact that millions – the total is now estimated at £66m – were missing.
He allegedly provided confirmation that a £57 million sum missing from Axiom’s Barclays client account was resting safely in accounts at the State Bank of India, when in fact the SBI had no such client deposit accounts.
Modhwadia is accused of doctoring a letter from the State Bank of India so it falsely showed that it was holding a £57m sum missing from the firm’s Barclays client account. He is alleged to have given the forged letter to Pinsent Masons, which he had instructed to represent Axiom Ince in the SRA investigation, and Pinsents dutifully passed the letter to the regulator.
But at around 6.30am on 4 August, Pinsents partner Samantha Palmer asked one of her firm’s risk managers to catch a train to SBI’s Wolverhampton branch and collect original proof that the bank held the missing money, which was by then suspected of amounting to £64m.
Pinsent Masons’ man arrived at 9.42am, but Modhwadia got there first. He allegedly raced ahead of the firm he had instructed, then provided the branch’s relationship officer with a second forged letter reiterating that SBI still held the missing £57m. It even bore the bank employee’s signature, which must have been confusing for him.
In fact the money had been drained from the SBI after it was transferred, and the SFO has said its investigators will examine how funds got there, and how they were then used to fund Modhwadia’s purchases of Ince, Plexus and a property empire.
Axiom is also suing several property development companies controlled by Modhwadia’s brother, Uttam, whose defence states that he was “raised with the belief that it is important to be loyal to one’s brother”.
Denying all Axiom’s claims, Uttam claims that he “had no understanding as to the nature or significance of a solicitor’s client account and at no material time did he believe, or have reason to believe, that [Modhwadia] had ever misappropriated monies from a client account or otherwise”.
Nick Ephgrave QPM, Director of the Serious Fraud Office, said, “There are a number of significant questions that need to be answered: clients from this law firm are missing many millions of pounds and more than 1,400 of its staff have lost their jobs”, adding that “we have used our specialist powers to obtain important information that will help us get to the bottom of what happened.”
Modhwadia's lawyer did not respond to a request for comment.