Napoli & Anor v R.

Between 12^th April 2010 and 30th June 2010 in the Crown Court at Southwark before H.H.J. Pitts four Defendants, Vibhawa Fonseka. John Francis Napoli, John Branham James and Mushtaq Ahmed, stood trial on an indictment containing 40 counts.

Vibhawa Fonseka changed his plea to guilty on Count 31, which alleged unauthorised regulated activity contrary to ss.19 and 23 of the Financial Services and Markets Act 2000. He was convicted after trial of 26 counts of obtaining a money transfer by deception, two counts of obtaining property by deception, and two counts of money laundering contrary to section 93C of the Criminal Justice Act 1988. He was sentenced to a total of eight years imprisonment.

The First Applicant Napoli was convicted of unauthorised regulated activity contrary to ss.19 and 23 of the Financial Services and Markets Act 2000 (Count 32). Napoli was acquitted of money laundering contrary to section 93C of the 1988 Act (Count 37), the jury having been unable to reach a verdict and the prosecution having subsequently offered no evidence. On 22nd February 2011 in the same Court (before the same Judge) Napoli was sentenced to 12 months’ imprisonment suspended for 2 years.

The second Applicant James was convicted of three counts of obtaining a money transfer by deception (Counts 2, 16, and 24), one of conducting unauthorised regulated activity (Count 33), money laundering contrary to s.93A Criminal Justice Act 1988 (Count 38), and money laundering contrary to s.328 Proceeds of Crime Act 2002 (Count 39). James was acquitted of two further counts of obtaining a money transfer by deception (Counts 3 and 20) and of obtaining property by deception (Count 25).

On 2^nd July 2010 James was sentenced to a total of 7 years imprisonment made up as to concurrent terms of five years imprisonment on Counts 2, 16, and 24, twelve months imprisonment on Count 33, and seven years imprisonment on Counts 38 and 39 with a direction under s240 Criminal Justice Act 2003 that 2 days should count towards sentence.

Mushtaq Ahmed changed his plea to guilty (after the jury had been sworn) to Count 34, which alleged unauthorised regulated activity. He was sentenced to pay a fine of £5,015 and ordered to pay prosecution costs of £5,000.

There are four issues to determine:

It is necessary to start with an overview of the case as a whole. James, together with the co-accused, Fonseka, was, between May 2002 and August 2004 a director of VHF Trading Ltd. From April to November 2003 he was also a company secretary for JFN Project Consultants Ltd, a company of which Napoli was a director.

James had worked previously as a solicitor from 1983 until the early 1990s when he had pleaded guilty to stealing money from the firm’s client account.

In early 2002 Viswajit Palasuntheram, a property developer and the complainant on Count 2, had a meeting with Fonseka and James about an investment programme. Palasuntheram gave evidence that James was introduced to him as a lawyer and thereafter led the meeting and conducted a presentation regarding the investment. Fonseka and James explained that they were trading in securities bonds and offered Palasuntheram the opportunity to invest in the scheme, assuring him that the safety of his investment was guaranteed and offering a return of around 4% p.c.m. (48% p.a.) in interest. Placing reliance upon these stated returns, on 15^th February 2002 Palasuntheram invested £60,000 with Fonseka and James. On 21^st March he invested a further £120,000 having been informed of an opportunity to invest in a special project with a promised a return of 60% p.a. so long as the money was paid within one week.

Palasuntheram received a number of payments in return for his investments and thereafter in April 2002 invested a further £150,000. This was in response to a promise of 72% p.a. interest if the further monies were invested quickly. Again, he received some return payments upon his investment and remained happy and so in July 2002 he invested a further £140,000 with a stated return of 132% p.a. interest. This sum was paid by cheque into a US escrow account in the name of Anthony Bologna. Fonseka informed Palasuntheram that the trader conducting all of the transactions was Napoli.

Palasuntheram continued to invest further monies, something like £800,000 in total by the end of October 2002 with more to follow. He agreed that the capital owed to him from the earlier investments should be rolled up into further investment schemes. He continued to receive some interest payments by cheque, initially from either Fonseka or VHF Trading and later from third parties.

There came a time when the interest payments dried up and Palasuntheram became fearful for his capital. His final payment to Fonseka of £18,000 was in October 2003 . Fonseka wrote to him in March 2004 with a statement of the total sums owing which, including interest, were said to be £2.1 million. Fonseka continued to re-assure him that Napoli would be forthcoming with the money but no further payment were made. Palasuntheram also saw James on further occasions in the company of Fonseka and during a trip to a Belgian bank.

Having initially said that the investment schemes had left him nearly £1 million out-of-pocket, Palasuntheram subsequently gave evidence that as a result of the re-payments that had been made he had received most of his capital back.

Capital payments from later investors in the scheme were utilised to make ‘interest’ re-payments to Palasuntheram. These were known as ‘Peter to Paul’ payments.

Ashik Patel, the complainant on Count 16, was Fonseka’s next door neighbour. They would speak together about investments and Fonseka told him that he was getting very high returns on short period investments. Patel trusted Fonseka but he wanted further information as to how the investments worked and so he attended a Baker Street office where he met James. Patel said that James was introduced as, and confirmed himself to be, a United Nations lawyer working on behalf of governments. James said that the investments were in humanitarian projects and were not open to the general public. The impression was given that the investments could not return a loss. In reliance upon James’ presentation Patel decided to invest.

Patel invested an initial £50,000 in July 2003, in the expectation of a 120% return, and a further £200,000 in October of the same year, in the expectation of a return of 15% p.c.m. He received no interest payments on these particular investments (although he did receive interest payments on a separate investment). Fonseka repeatedly re-assured him that the payments would materialise. He also handed to Patel cheques which bounced.

In March 2004 he made a final investment of £150,000 with Fonseka which was supposed to be used to purchase Asian Bride magazine and which offered a doubling of the capital invested.

The name of Napoli was mentioned to him but only towards the end of his period of investing when he was chasing his money. Fonseka provided him with various documents so as to re-assure him that his money would be returned to him by Napoli. Patel spoke on the phone with Napoli who confirmed that he did have an agreement with Fonseka but had no agreement with Patel.

Dushyantha Karunatilleke, the complainant, was introduced to James in late 2003 or early 2004 . He said that James put himself forward as a solicitor and spoke about investing in Federal Reserve humanitarian projects. Karunatilleke subsequently attended James’ office in Wardour Street, London where he was giving a presentation on investments to about ten to fifteen other people. Karunatilleke paid a cheque into James’ personal account in return for an agreement promising a £400,000 return on an investment of £60,000. In total Karunatilleke paid over £125,000 between March and August 2004 and which James informed him had been paid into investments, treasury bills, short and medium term notes, and humanitarian projects. Not having received any return on his investments Karunatilleke instructed a solicitor. James wrote to him in April 2005 promising a payment of £375,000. No money was ever received.

In July 2002 $1 million of the money that had been obtained from the various complainants was transferred to the bank account of a Switzerland-based solicitor called Bologna. He kept some of the monies and transferred the remainder back to Fonseka and to both a South African associate called Johannes Kriel and to Napoli. The document purporting to justify the $1 million transfer described itself as an ‘inter-party private agreement’ between JFN and VHF. The agreement was signed by Napoli and Kriel on behalf of JFN and by James on behalf of VHF.

In January 2004 Swarnapali Timman signed an inter-party private agreement with Napoli that promised on an investment of £625,000 a return of £1,125,000 over twelve months. The full £625,000 was transferred to NAPOLI’s HSBC account in London. From there the money was divided up, some of it being returned to Timman, some to Fonseka’s creditors, and the rest to Napoli and his associates. There was no evidence that the deposit had ever been obtained by deception.

Neither NAPOLI nor JFN Project Consultants Ltd:

Surrinder Chadha, the complainant on Count 18, had invested monies with Fonseka which he understood were going to be placed through Napoli in a $10 million high yield investment. When his expected return did not materialise and Fonseka repeatedly provided him with excuses, Chadha decided to set up a meeting with Napoli directly. He did so by falsely claiming to Napoli that he had investors prepared to invest £10 million. The meeting took place in a hotel in October 2004.

Chadha said that during the meeting Napoli advised him that the investor funds would need to be paid into Napoli’s own account. Chadha in turn explained that this would not be possible. Napoli explained that the proposed investment was in humanitarian projects through the Federal Reserve. Nothing further was discussed at the meeting.

A number of draft inter-party agreement documents were also recovered from Napoli’s computer together with his curriculum vitae in which he had stated that his role as chairman of JFN was to provide credit services.

In interview Napoli stated that he did not now really know whether he had received monies and he would need to check his books to see where any monies had come from. He had nothing to do with any investors. The case against Napoli on Count 32 was that he was holding himself out as accepting deposits on a day-to-day basis, as evidenced by material found on his computer. Only two deposits were actually secured because of the very large sums of money involved. The prosecution contended that the small number of deposits did not mean that he was not acting as a business.

The case for Napoli on Count 32 was that he could not be said to be holding himself out as accepting deposits on a day-to-day basis given that he had only taken two deposits in the space of two years. His Counsel made a submission at the close of the prosecution case that there was no case to answer.

Napoli, a man of previous good character, did not give evidence. Two witnesses gave character evidence on his behalf.

The issues for the jury in respect of Napoli on Count 32 were whether the applicant was holding himself out as a business accepting deposits on a day-to-day basis and whether or not the two deposits taken were merely deposits taken on particular occasions.

We turn now to the case for and against James. The prosecution case against James on Counts 2 and 16 was that he played an important role in the joint enterprise of defrauding people together with Fonseka. He was not only an important link man to JFN in the US but he was also present with Fonseka and personally made representations to those complainants. On Count 24 he alone made the dishonest representations. In each instance James falsely and dishonestly represented that he intended to invest the complainant’s money, that he intended to repay the capital with interest, and that he was able to fulfil the terms of those agreements.

The case on Count 33 Unauthorised Regulated Activity against James was that he was clearly accepting deposits together with Fonseka on a day-to-day basis.

The case on the money laundering Counts 38 and 39 was that James knew from his own involvement in the deceptions that Fonseka was engaged in criminal conduct and he had become concerned in arrangements to facilitate the retention or control by Fonseka of the proceeds of crime by way of the ‘Peter to Paul’ payments and the $1 million transfer to the U.S.

The defence casefor James on Counts 2 and 16 was that he was not a party to obtaining deposits from the complainants and those witnesses suggesting that he was were wrong. His case on Count 24 was that the complainant had not placed investment monies with him but had instead provided him with a loan and subsequently forged documents to make the loan appear to be something that it was not .

The case on Count 33 was that he did not accept any deposits at all either by himself or with Fonseka. He took one loan, not a deposit, from Karunatilleke and the deposits that had been taken as part of the earlier Castellaine and Pentad investments had been taken by an authorised person.

The case on Counts 38 and 39 was that the deposits had been collected by Fonseka and James neither knew, nor had any reason to believe, that the monies had been dishonestly obtained. He believed that they had been honestly collected for the purposes of a genuine trading scheme.

James gave evidence. In respect of Counts 2 and 16 he said that he had given investment presentations in late 2001 / early 2002 at which Palasuntheram and Patel had been present. However, all the presentations he gave were in relation to the Castellane investment scheme and had nothing at all to do with VHF / JFN contract. He knew nothing whatsoever about any contract Patel may have had with Fonseka and he was not party to any such contract.

In respect of Count 24 he said that he had been introduced originally to Karunatilleke by Fonseka but took no contact details for him. Karunatilleke subsequently got in touch with him to say that he had met with someone purporting to be John James and he was now struggling to get his money back. James met Karunatilleke in Wardour Street and explained to him that he was now brokering films and no longer trading. Karunatilleke made a loan to him. It was not an investment. Thereafter James struggled to keep up with the re-payments on the loan and Karunatilleke became increasingly threatening. As a consequence James wrote the note for him promising to pay him a lump sum. Karunatilleke had dishonestly doctored documents to make them appear to be something they were not.

Fonseka was responsible for taking his Castellaine pitch and using it to secure investors for the JFN contract without James’ knowledge. Fonseka was responsible for taking clients’ money to service other clients’ debts. James’ name did not appear on any of the VHF / JFN agreements. It was Fonseka who had been acting dishonestly, not James. He had only taken deposits from two individuals, neither of whom were victims of fraud. All other depositors were signed up by Fonseka. He believed that all money that Fonseka was brining in either belonged to Fonseka, his family and friends. In respect of the money laundering charges he did not know that the money Fonseka was bringing in had been dishonestly obtained.

A Reverend Jaggs gave evidence on James’ behalf and said that he had partaken in investment scheme promoted by James and, although he did not profit, he had not lost any money and had received honest advice from James.

Fonseka gave evidence that he had first met James in 2001 and it was James who had introduced him to the world of high yield investments. Fonseka himself obtained regular returns from his own investments in Castellaine. James had presented himself as an experienced lawyer working for the UN. Fonseka became involved in the business and started collecting money to invest from people he knew within the UK Sri Lankan community. That was his sole role and in performing it he thought he was behaving honestly. James was responsible for the legal and contractual side of the business and for making sure that the agents with whom the money was placed were legitimate. James was responsible for setting up the $1 million contract with JFN and instructed the co-accused accountant, Ahmed, to move the money into the Bologna account. Fonseka believed he was entering into a genuine deal.

It was only at the end of 2003 that he met Napoli directly and was then informed that James had been lying to him and that the JFN contract did not guarantee that the monies would be invested immediately.

A statement from Brian Woutersz was read as hearsay on behalf of Fonseka in which he stated that James had attempted to persuade him to invest in a humanitarian investment scheme. James had presented himself as having worked for the US Federal Bank.

The issue for the juryin respect of James on Counts 2 and 16 was whether he was present and a party to the false representations when they were made. The principal issue on Count 24 was whether Karunatilleke had provided a truthful account that he had placed an investment with James on the basis of representations made, rather than having provided him with a loan.

The principal issue on Count 33 was whether James had taken any deposits at all. The principal issue on Counts 38 and 39 was whether James knew, or had reason to believe, that the monies obtained by Fonseka had been obtained dishonestly.

The count alleged that Napoli had taken part in unauthorised regulated activity, contrary to sections 19 and 23 of the Financial Services and Markets Act 2000.

The Act provides as follows

Provision is made by s419 that

That was done by the Financial Services and Markets Act 2000 (Carrying on Regulated Activities by Way of Business) Order 2001, which provides at Regulation 2 in the case of a Deposit Taking Business that:

It follows that the prosecution had to adduce evidence from which a jury could safely be asked to infer that Napoli was holding himself out as accepting deposits on a day to day basis, or was accepting deposits on occasions which were not “particular. ”

The defencesubmitted in respect of Count 32 that no jury could be satisfied that Napoli was (a) holding himself out as accepting deposits on a day-to-day basis or (b) that the deposits accepted were not deposits accepted only on a particular occasion. The overwhelming inference to be drawn from the fact that there were only two deposits was that they were deposits accepted on particular occasions.

The prosecution submitted that these were issues for the jury. Even though there was force in the submission as to limb (b), the jury could nevertheless be satisfied that Napoli held himself out as accepting deposits on a day-to-day basis thus satisfying limb (a).

The Judge ruled that there was a prima facie case to go before the jury on both limbs, albeit that the case on limb (b) was weaker. Nevertheless, ‘particular occasions’ could mean very different things depending upon the type of deposit. The complainants in this case were wealthy and sophisticated and were being targeted for substantial investments. Even though the business was day-to-day, the success rate in targeting would-be investors may be relatively small. The deposits may seem to be on ‘particular occasions’ in that they are few in number. On further analysis they may be, in the context of the nature of the fraudulent schemes, part of the day-to-day business of the alleged fraudster and thus fulfil a different definition of ‘regular and frequent’. The deposits did not automatically come under the umbrella of ‘particular occasions’.

In respect of limb (a) the judge concluded that there was plentiful evidence by which the jury could safely infer that Napoli was holding himself out as accepting deposits on a day-to-day basis..

The judge took the view that in the case of a fraudulent scheme such as this one, where one is seeking to land a few very wealthy fish, then the number of successful catches may actually be very few. He also placed reliance on the draft documents found on the Appellant’s computer. In addition there was the further evidence from Mr Chadha as to his meeting with Napoli. However we note that the Crown did not charge Napoli with being part of the conspiracy to defraud.

In our judgement on the material before us there is an arguable case that the ruling in the case of Napoli was wrong. It is arguable that the prosecution had not adduced evidence to show any holding out of himself as a deposit taker, nor to show that his taking of deposits was not confined to very few and particular occasions. We grant leave so that the full court may have the benefit of hearing argument from the Crown.

We also direct that the Respondent prosecutor should file its response to the appeal by 4^th November 2011. In that response, it must identify what it avers amounts to holdings out by Napoli.

On the fourth day of trial, but prior to the opening of the case, James’ legal team withdrew from the case saying that they had become professionally embarrassed James, who did not wish his legal team to withdraw, thereafter applied for the matter to be adjourned for a period of some 3 – 4 weeks to enable him to instruct a new legal team All other parties, with the exception of Fonseka, opposed the application. An application for an adjournment from Fonseka, who had also found himself unrepresented, had already been refused.

The Judge refusedthe application to adjourn. He said that the 8 – 10 week trial had been fixed for about a year. An adjournment of at least one month would be required to instruct a new legal team. James was a former solicitor who had practiced for about ten years up until 1993. He knew his own case well. Opposition to the application from the Crown and those representing Napoli and Ahmed was strong, and there were others who would be affected by an adjournment. James was therefore to represent himself.

On the day following the above ruling, Mr. James of Counsel attended Court to make a further application on behalf of James for a transfer of the Representation Order to a fresh legal team and to grant an adjournment of between 1 – 2 weeks to enable legal representatives to prepare for trial. In the alternative, if an adjournment was refused, he applied for a transfer of the order to fresh solicitors to enable them to find Counsel who would be prepared to assist at trial without an adjournment. Once again, all other parties, excepting Fonseka, opposed the application to adjourn. Counsel instructed to make the application (another Mr James) also raised the issue of the Applicant having the assistance of someone while representing himself.

The Judge ruled that he was driven to the conclusion that James had deliberately manipulated the situation so that his legal team were either sacked or forced to withdraw. He concluded that James and Fonseka had a strong desire to derail the case, possibly in the hope that they would be tried separately from the others at a future date. He said that they must have been aware of the almost certain consequences of their deliberate actions. The proposed adjournment of two weeks would be insufficient for a new team to prepare for trial and a period of at least four to five weeks would be required.

The case could not be properly presented if the order was transferred and the trial proceeded without delay. The judge said that James was quite able to understand, and doubtlessly knew, all of the evidence against him which he would have discussed at great length. He was quite able to conduct his own case.

Mr James contends in his application for leave to appeal that:

He was represented before us by Mr Beck, who put his client’s case with succinct elegance and frankness. He referred to the guidance from the Lord Chief Justice in R v Ulcay [2008] 1 All ER 547, [2007] EWCA Crim 2379 at paragraphs 30-36.

We agree that that sets out the relevant guidance for this Court to follow.

It is apparent when one looks at the summing up that there was a major conflict between the Applicant James and his solicitors and counsel about the terms of the defence statement. He made it plain in his evidence (when he was asked about it) that it contained 17 major errors, that he had signed it in a hurry, and that his lawyers were incompetent. That statement has been in existence since October 2009.

At the time of the first application, the likely adjournment was for at least 4 to 5 weeks. Although we think that the judge could have explored matters more thoroughly, he was entitled to form the view that the application for an adjournment to instruct new counsel would have caused substantial disruption to the arrangements for the trial. He was also entitled to give weight to the representations made on behalf of Napoli and Ahmad, and by the Crown. He was also entitled to have regard to the fact that James was legally qualified.

Is it arguable that he should have acceded to the second application? He now relied also on his conclusion that James, like Fonseka, was seeking to manipulate the trial. In our judgement when one looks at his ruling, it is clear that that is the view which he had, albeit not expressed as such, at the time of the earlier ruling.

If that was the view he formed as the trial judge, then he was entitled to do so. Mr Beck in his submissions to us, accepted that the trial judge had material before him upon which he could properly have reached the conclusions which he did about the manipulation of the trial process. It follows that there can be no arguable challenge to the decision that the trial should continue without delay for a new defence team to be instructed.

Mr Beck then argues that the judge should have directed a transfer, limited to the provision to the Applicant James of assistance in the presentation of his case. He points out that at some point during the prosecution case the Applicant asked for such assistance which was then granted, and points out that that option had been put before the judge by counsel on the second application. However here one must look at the effect which the absence of such assistance might have had. This was a case in which the issues for the jury turned on the stark conflicts of evidence between the prosecution witnesses, Fonseka and the Applicant about what he had said, and whether he had been present at meetings. This is not a case which turned on subtle points about the interpretation of documents, albeit that it involved looking at documents. It turned on clear issues of which witnesses the jury believed, and whether they thought that the Applicant was truthful. The jury plainly concluded that he was not. That being so, we find it hard to see how the presence or not of such assistance during the Crown’s case would have affected the outcome of the trial.

Finally one must then stand back and look to see whether the trial process was fair. We agree with the single judge when he said:

“The key, in the circumstances of the particular case must be whether in the end the accused was able to understand the evidence, access the appropriate documents, ask questions and give his account clearly. In many respects an unrepresented defendant has an advantage in that he will be given greater freedom to conduct his case than an advocate bound by, and fully aware of, the rules of evidence and procedure. I see nothing in the papers to indicate that this applicant suffered unfairness. His case was clear and clearly put to the jury. The judge’s decision at the outset was reasoned and ultimately justified by the course taken by the trial.”

It follows that in our judgement that, had the application for leave been made in time, we would have refused leave to appeal against conviction.

The applicant had one previous conviction from 1993 for six offences of theft for which he received a sentence of 18 months imprisonment.

The judge said that James was the able lieutenant to Fonseka. His actions seemed to have influenced significantly some of the investors. There was no doubt that he knew what the investors were being presented with and what they were signing. The humanitarian projects were a carefully crafted piece of deception. James’ role was as the smooth-talking lawyer working on the legal side of the contracts. From spring 2002 he had a foot in both the JFN camp and the VFN Trading camp, of which he was a director. Had the Crown charged the case as a conspiracy to defraud then on one view James would have been the senior partner in respect of Fonseka.

Count 24 involved his very own self-generated deception. His total joint responsibility was in the region of £1.25 million. It was significant that he had been convicted on Counts 38 and 39 of laundering the whole of the proceeds of the fraud totalling from £6 million.

It is argued in the application to appeal that the sentence was manifestly excessive. It is argued that the money laundering counts added nothing to the applicant’s culpability and the sentences imposed on those counts should have been no greater than those imposed on the obtaining counts, namely concurrent terms of five years imprisonment. The application refers to the authority of R v Greaves [2010] EWCA Crim 709 , which we have considered.

The case against James was that he had been engaged in both the obtaining of deposits fraudulently- both with Fonseca and on his own, but also in being responsible for getting them transferred to the USA. That entitled the Judge to increase the sentence to take account of that factor. Before us, Mr Beck conceded that the judge did set out reasons why he imposed an additional period in respect of the money laundering offences.

As the single judge said when refusing leave to appeal; “While the sentence was severe and it is on the face of it surprising that a longer sentence was imposed for the money-laundering offences than the fraud offences the totality of sentence, viewed on its own and by comparison with the other accused was not manifestly excessive for these serious and repeated offences.”

Had the application for leave been made in time, we would have refused leave to appeal against sentence

Given our conclusions on the substantive merits of the applications by James, the application for extension of time is refused.