Northern Rock – why it abused the charity

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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.