The former chief executive of Barclays and three of his senior colleagues lied to the market in official documents detailing two emergency fundraisings in 2008 that enabled the bank to avoid a UK taxpayer bailout, a jury has heard.
John Varley on Wednesday became the first chief executive of a major bank to sit in the dock to face a jury trial over actions taken during the financial crisis.
In a packed London courtroom a jury was instructed to put out of their minds any preconceptions they might have about bankers and their value to society during the trial, which could last as long as six months.
Mr Varley and his alleged co-conspirators stand accused of funnelling to Qatari investors secret fees of more than £320m in exchange for more than £4bn in investment.
The Serious Fraud Office says this was a desperate attempt to keep the bank afloat and not imperil two capital calls dubbed “Project Birdcage” that went on to raise more than £11bn. Barclays twice turned to investors from Qatar, China, Singapore and Abu Dhabi that year to avoid a UK government bailout.
The secret fees were paid to a Qatar sovereign wealth fund through side deals known as advisory services agreements, which the SFO alleged were merely “dishonest mechanisms” designed to hide the fact that the bank had yielded to Qatar’s demands for more commission than other investors.
The jury saw a copy of the first agreement, signed by Mr Varley in June 2008, at the time of the first of the capital calls. Pledging a total of £42m to Qatar Holding, the Gulf state’s sovereign wealth fund, the amount was handwritten and the total agreement was only five paragraphs long.
The Qatari investors — which included the then-prime minister, Sheikh Hamad bin Jassim bin Jabr al-Thani — “drove a hard bargain”, the court heard. The side deals meant that in addition to the disclosed fees that other investors received, Barclays paid the Qataris double the amount other investors got.
Barclays then paid them another £66m — which was disclosed — for an introduction to Abu Dhabi investors weeks later.
“Additional commission fees for investing were paid to the Qataris, say the Crown; additional commission fees that were not paid to other investors and were not revealed,” Edward Brown QC for the SFO told the jury on the opening day of trial at Southwark Crown Court.
“It is the hiding of these additional commission fees which lies at the heart of this case and the conspiracies alleged against the defendants, disguising and hiding extra fees to the tune, ultimately, of a total of nearly a third of a billion pounds.”
The fundraisings’ prospectus and subscription agreements implied that no extra fees were being paid to the Qataris, which was a lie, the SFO alleged.
Mr Brown told the jury that potential investors in capital calls and the wider market assume that all investors are paid the same, and need to know if any additional commissions are paid. Had other investors known what Barclays was willing to pay to the Qataris, they may have demanded the same treatment, or even not have wanted to invest at all.
Mr Varley, who carried a Barclays-branded bag with him into court, and the three other co-defendants stand accused of fraud by false representation. It is one of the SFO’s flagship cases and a key test after a series of high-profile defeats.
The SFO’s corporate charges against Barclays, which included unlawful financial assistance over a $3bn loan made to Qatar just as the second fundraising was closing, were scrubbed.
Mr Varley and his co-defendants and former colleagues — Roger Jenkins, Tom Kalaris and Richard Boath — sat quietly in the dock to hear the case against them. Mr Jenkins managed relationships with “significant decision makers” in Qatar prior to 2008 as the executive chairman for the Middle East for Barclays’ BarCap unit, the jury heard.
Mr Kalaris was the head of the bank’s wealth division. Bob Diamond, the former head of Barclays’ investment bank who went on to succeed Mr Varley as CEO, described Mr Kalaris as “the quarterback” for the fundraisings, according to a document seen by the jury.
Mr Boath, the European head of BarCap’s financial institutions group, told a colleague in May 2008 that responsibility for the forthcoming fundraising “would be mine”, according to the same document.
The four men all deny wrongdoing. Mr Varley and Mr Jenkins face two counts each over both fundraisings, which took place in June and October of 2008. Mr Kalaris and Mr Boath face one count each over only the June fundraising. The charges carry a maximum 10-year prison sentence.
A fifth alleged co-conspirator, Chris Lucas, was the chief financial officer and board member of Barclays in 2008. Mr Lucas, who suffers from ill health and is not fit to stand trial, has not been charged, the court heard.
The trial continues.
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