Several people have questioned why I think Northern Rock abused Down's Syndrome North East by naming that charity as the beneficiary of the charitable trust that controlled it's debt issuing Special Purpose Vehicle (SPV) called Granite Master Issuer plc.
I admit to surprise that the question is even asked by those who have done so. Reaction to the point I made seems markedly divided: those in the City can see no problem, those outside the City are shocked by this abuse. In itself this says something about the City and how anaesthetised those who work there are to the abuse that takes place in the name of profit.
There are two real problems, but each is profound. The first is that I think, to put it bluntly but quite fairly, Down's Syndrome North East was subject to identity theft by Northern Rock in pursuit of its own profit. Its name was used in documents that acted as inducement to subscribe for billions of dollars. But as the organisation has now made clear, they are now:
investigating why our charity appears to have been named as a beneficiary of a Trust without our consent. We have definitely not received any money from Northern Rock or affiliated companies, except for a one-off donation from a staff collection in 2001.
I think the organisation has a perfect right to feel that their identity has been abused, and that the interests of those they seek to serve has been abused with it. It staggers me that some people cannot see this. Just imagine how you would feel if your name had been used by someone for their financial advantage without ever asking for your consent, or ever making payment to you, even though it was clearly implied that you would do so in a public document issued for your own gain. How come the City does not understand that?
But there is a more profound point still that moves beyond the decency issue, and identity theft. I think the whole Granite structure, and that of similar Special Purpose Vehicles, whether on or off balance sheet (and let me be clear - every bank uses them) is a based on a fraudulent misrepresentation.
I use the word 'fraudulent' with care. I use it to say that these structures were 'meant to deceive' - which is a definition of the word. I am not saying as a result they are illegal, or that anyone acted illegally. There is no evidence to suggest this. But it does not change the fact that these arrangements are fraudulent misrepresentation, because they are false and phoney and that is another definition of fraudulent.
The fraud is simple. It is claimed that an SPV is not owned by the company that creates it because it is set up under the ownership of a charitable trust through the office of a nominee company, often in an offshore and relatively unregulated location such as Jersey. This is, for example, what is shown in the Northern Rock ownership diagram. But this claim is untrue. The legal form of this structure is that it is independent of the company creating it. The reality is that the whole arrangement is a sham - in other words, it is something that is not as it purports to be. These entities are mechanisms for issuing debt of the creator company, and nothing else. That means that they are a legal fabrication of no real substance that depend upon the fiction of having charitable ownership and intent, which, as far as I can see is rarely fulfilled - as the Northern Rock case seems to show.
In which case we have the City of London trading in the debt of entities which involve fraudulent misrepresentation in their creation - because the claim that they make is deceitful even if legally correct.
Three things follow. The first, obvious point is that the law in this case is an ass, and must be reformed to stop this abuse. The Charity Commsssioners seem to be the obvious people to take up this issue with the government.
The second is that the City is a persistent party to this deception. No wonder we have an ethical crisis in its conduct, and that those who have commented seem blind to this obvious point. They have been desensitised by this abuse of their ethical awareness.
Third, when such ethical desensitisation occurs corruption is but a step away. And that's why this mechanism needs to be reformed.
And it's why I have drawn attention to this issue. Because fraudulent misrepresentation is never attractive. But it's much worse when perpetrated by the 'great and the good'. Especially when done at the expense of those who deserve so much better. As does society at large.
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Hear, hear
And Richard – can you drop me you email address and or phone number..
paul.murphy@ft.com
[…] But my media coverage is not the important bit. The Guardian story sought to develop another new angle on this aspect of the story, to add to that on governance and the abuse of charity which have been greatly troubling me. This is that there is a very real problem in the structure of the Granite relationship for the government, now out of pocket to the tune of £24 billion to Northern Rock. Let’s go back to the Northern Rock balance sheet, depicted graphically here, and borrowed from its own published accounts: […]
[…] And you could have read all of it here beforehand. […]
Well done on highlighting these aspects of the Northern Rock mess/scam.
I would add that it’s amazing that the FSA/Teasury etc. seem to have ignored the obvious warning signs until it was too late. I’ve also uneathered a couple of other vehicles used by Northern Rock called Dolerite and Whinstone Capital Management which although much smaller than Granite are somehow connected to it and whose role isn’t at all clear. Some research on these two maybe useful.
I would also point out that I heard somewhere that legislation has been passed which means that from now on Northern Rock is no longer subject to the Freedom of Information Act. Is this true, and if so I find it extremely worrying to us as the taxpayers who have had to bail out this mess.
Finally I would urge that people write to their MPs regarding this topic so it can’t be forgotten or covered up as the Government would wish.