Ex-owners of broker AFL told to pay millions over fraud

Directors misused client money and made misrepresentations to buyer, judge finds

Ex-owners of broker AFL told to pay millions over fraud

Insurance News

By Jen Frost

Former AFL owner Alec Finch and his son Bob Finch, former AFL CEO, were found to have painted a “false picture” of the wholesale broker’s financial position prior to the 2017 sale of a 58% stake in the business to Next Generation Holdings Limited (NGHL), an investment vehicle of former Cooper Gay CEO Toby Esser.

At time of discovery, there was a £3.5 million client money hole that both Finches were aware of and at least in part responsible for, the judge found. Further, it was found that a list of debtors provided prior to the sale had overstated sums owed to AFL.

Fraud allegations first came to light in 2020, when AFL CFO Chris Gagg discovered that income accruals had incorrectly been posted in the firm’s financial records, according to court documents.

Gagg had replaced former AFL CFO Keely Dalfen around a year after the stake sale to NGHL, it was stated in the ruling.

“Brazen raids” on the client money account

Email evidence showed instances of “brazen raids” carried out on the client money account that Alec Finch was both aware of and in agreement with, as the business sought to plug wage shortfalls and pay an outstanding tax bill, according to the documents.

In one back and forth between Alec Finch and Dalfen, dated 2011 and in which the pair agreed to use client money when the business had insufficient funds to meet expenses, the latter signed off: “This email will self destruct in 5 mins."

There was “clear and detailed evidence” that false accruals had been used as the mechanism to use client money, the judge said.

Further, the judge reached the “clear conclusion” that there had been fraudulent misrepresentation around AFL’s debtors prior to the sale and found that Esser had been influenced by these in the run up to the deal.

NGHL had made significant investments in AFL

Prior to the emergence of the fraud and the ensuing court case, NGHL had made multiple additional capital injections into the business following its initial investment. This included £1.88 million in 2018, £386,780 in 2019 and £316,753 in April 2020.

“These all represent, in my judgment, consequential losses of NGHL caused by the transaction,” judge HHJ Johns KC said. “They are sums paid by NGHL to fund a business which it was induced by fraud to buy.”

Damages of £6.12 million are payable by the Finches, the judge ruled.

Dalfen, who gave evidence on behalf of the claimant during the June proceedings, was found liable to the claimant but not the Finches. It would not be “just and equitable” for her to contribute to the sums owed, the judge ruled.

The ruling is subject to appeal.

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