Off On A Tangent: Fraud Claims And Lost Trading Profits
Claims to recover losses on derivatives are often as speculative
as the trades themselves. But throw a fraudulent broker into the
mix and everything changes, as last week's case of
Parabola Investments Ltd v Browallia Cal Ltd &
Ors demonstrates.
The High Court awarded some £20 million to Tangent, an
investment vehicle run by Rajesh Gill, a well-known trader with an
enviable track record trading in "market makers". Mr Gill
had relied on daily dishonest misrepresentations by a Man Financial
Group broker that his trading in CFDs (contracts for differences)
was profitable.
Not only did the Court find that the broker ought to make good
the losses on trades, but it also awarded damages for the profits
Tangent would have probably made on alternative investments. Flaux
J went further and held that the lost profits should be calculated
not just for the period of the fraud, but up to the date of
trial.
The fraud
Between June 2001 and February 2002, Tangent traded through
Matthew Bomford, a senior broker at MF Global UK. Much of Flaux
J's judgment is coloured by what he put as Mr Bomford's
"disastrous three days in the witness box". The judge
described him as "a persistent and inveterate liar" and
"a stranger to the truth".
Mr Bomford, he found, made daily and weekly misrepresentations
to Mr Gill that his derivatives trading was profitable. In fact, Mr
Gill was consistently trading at a loss - or, in the charming words
of Mr Bomford, "losing his arse".
Mr Bomford also made fraudulent misrepresentations as to the
funds in Tangent's account. On 26 October 2001, he told Mr Gill
that the company's funds stood at £9.27 million when they
in fact stood at some £2.8 million. The Court said these
misrepresentations were significant because they were intended to
give Mr Gill the impression that the account was continuing to grow
because of his profitable trading, and also that his year-end
target of £10 million, of which Mr Bomford was aware, was
achievable.
Recoverable losses
The Court awarded damages for the capital loss of the amount by
which the trading fund was depleted as a consequence of the
fraud.
The Court also awarded the loss of profits that Tangent would
have made on investments in alternative trades during the period of
the fraud, plus damages for loss of profits for the period after
February 2002 until trial.
Loss of profits during the period of the fraud
The defendants argued that, in all of the cases in deceit where
loss of profits has been held...
To continue reading
Request your trial