Legal Case Studies

FRAUDULENT TRADING: PROSECUTION AND DEFENCE



Fraudulent trading is a serious offence with very serious consequences should the prosecution prove successful, which is why when facing an investigation, it has never been more necessary to prepare a defence as soon as possible.

When building a defence for a fraudulent trading case, each defence will be different as each defendant individual circumstances are different, but there are some standard strategies and preparations a good defence will begin working on from instruction.

Background

Whilst part of the key to a good defence is reflecting that the defendant had no dishonest intent, to do this the team requires a depth of background knowledge on the defendant, the company, the company structure and financial position. This allows the defence to challenge the prosecution, particularly in cases such as long-term fraud, where the defence will need to reflect the legitimacy of the company to the jury.

The defence will essentially be telling a story just as the prosecution will, and so to tell this story, the defence requires information on the client’s role, responsibilities and position in relation to others at the company. The more information and detail a defence has to work with, the better position they are in to create a successful outcome.

Prosecution

The prosecution will try and prove that the defendant was dishonest with intent, whilst this is not easy to prove, the general practice is to show that the client acted in a manner that would be considered dishonest by the majority of people and were aware that this is how their actions would be seen, but they continued to act in that manner regardless.

Proving dishonesty with intent is particularly difficult at the best of times as any actions are often open to interpretation, using the information gained in their discussions with you, a good defence will be able to use this to allow for the benefit of the doubt from the jury, and to dispel any story by the prosecution.

There are some cases where it is not dishonesty that has led to a charge being raised against someone, but rather naivety and unfortunate unforeseen circumstances. For example, the recession hit business hard and in some ways quite unexpectedly, and often it is the case that not all senior staff in position of authority requesting orders is aware of the company’s financial position. These circumstances are taken into consideration and are subject to less serious penalties. Predominantly dishonesty and the taking of deliberate risk at the expense of the creditors are the deciding factors in fraudulent trading cases.

Finance

Detailed information on the company’s financial position is obviously important in mounting a defence and sometimes damage limitation. Historical financial information as to how the defendant saw the company financial status at the time will be important in defending against accusation of dishonesty.

A defence team will need to view the company’s books and have complete transparency from the client as to what went on at the time. Often, a forensic accountant is hired to provide relevant information to proceedings and hopefully provide legitimacy to company transactions.

The more financial information possible, the better a defence can be made.

Whether it is a ‘one off’ action committed by a company Director, or a series of offences, any person or company with knowledge of fraudulent trading are at risk of being charged as the main perpetrator or aiding and abetting.


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