Is Fraud a Brain Game?

 by David Levy

January 6, 2002

    Raymond Keene and the London based company Brain Games Network plc (BGN) are the subject of fraud allegations made in an article entitled “Cheque Mates”, published in the current issue of the magazine Private Eye (Number 1044: Dec 28th-Jan 10th, page 27). The amounts in question total £510,000 (approximately $750,000), in addition to which the “Eye” discusses some fees totalling a further £201,000. This present contribution for Kasparovchess.com makes extensive use (by permission) of extracts and paraphrases of the Private Eye article.

    When it was launched in the Spring of 2000 BGN attracted £3 million in investment, but within weeks more than £500,000 had been siphoned out of the company. Private Eye point out that Sir Jeremy Hanley, who has been Chairman of BGN since March 2000 (and is a former Chairman of the Conservative Party), “apparently did nothing to prevent” the frauds. He also appears to have decided, for whatever reason, not to bring them to the attention of the police. It was only when the company’s first set of published accounts were sent to shareholders in late November that some shareholders spotted the two transactions totalling £510,000 and their fraudulent nature.

    In one transaction BGN purchased “the entire share capital” (to quote from the BGN accounts) of three virtually worthless companies for £220,000. These three companies were sold to Brain Games by Keene (its Games Director) together with a Swiss based company, Giloberg Finance Ltd. Keene, who is chess columnist of The Times, The Sunday Times and The Spectator, is not only a director of BGN but also a shareholder in the company. The phrase “the entire share capital”, used in the notes to the company’s accounts, appears to be designed to impart significant value to the three virtually worthless companies bought by BGN.

    The fraudulent nature of this £220,000 transaction is transparent. None of the three companies: Praetor Ltd, Brain Games Ltd and Havendisc Ltd (now called Chess Associates Ltd), had ever traded prior to their purchase by BGN. Praetor Ltd was incorporated on December 7th 1999, only weeks before it was sold to BGN, and had a total value (capital and reserves) of £1,000. Similarly, Braingames Ltd (a private limited company, not the same company as BGN which is “public”) was also incorporated on December 7th 1999 and it too had a total value (capital and reserves) of £1,000. Havendisc had been incorporated on September 7th 1998 but was dormant thereafter. Its total value (capital and reserves) was £300. But despite these three companies having a total capital and reserves of only £2,300, Keene and Giloberg extracted “a total consideration of £220,000” from Brain Games for their sale (again, the quote is from BGN’s published accounts). Uncovering this particular fraud needed only the germ of suspicion and a visit to the Companies House web site where all of the above company details are available for anyone to see, upon payment of a very modest fee.

    Another fraudulent transaction is described in BGN’s annual accounts as the purchase of “domains and a web-site for a total consideration of £290,000.” The web site in question is www.internetchess.com and was offered for sale by Chess & Bridge Ltd, a London company of excellent repute. Chess & Bridge Ltd, which owns a popular games shop in London’s Euston Road and publishes the UK’s leading chess and bridge magazines, sold this web site together with two domain names worth a few tens of pounds on May 5th 2000. However, that sale was not to BGN itself but to Giloberg, the transaction being negotiated on behalf of BGN (or was it Giloberg?) by Don Morris, a shareholder and former director of BGN and a friend of Keene’s. The sale price for the package was $100,000 (approximately £60,000 at that time). But before signing the purchase contract with Chess & Bridge Ltd Giloberg had, unbeknown to Chess & Bridge, already agreed to sell BGN that very same Web site and those very same domain names (www.brainrating.com and www.brainranking.com) for £290,000. By arranging for BGN to purchase of the site in two stages Giloberg, which is itself a shareholder in BGN, made an instant profit of approximately £230,000, the difference between the asking price from Chess & Bridge and the price actually paid by BGN. Giloberg’s profit was Brain Games’ loss – all £230,000 of it.

    In addition to these transactions Keene received fees of £50,000 within a few days of BGN receiving its £3 million investment income. One of the surprising aspects of this £50,000 payment is that it does not appear as a liability of the company in its Private Placement Memorandum – the document put out by BGN to attract investors. The company’s investors were therefore unaware at the time they put in their money that Keene was going to receive this payment immediately thereafter.

    Sir Jeremy Hanley was appointed a Director of Brain Games on March 2nd 2000, a few days before the £50,000 payment to Keene, a few weeks before the purchase of Havendisc Ltd and two months prior to the Web site fraud. Why Hanley and some of the other members of his Board turned a blind eye to these transactions is unclear. Morris had already resigned as a director when these transactions took place but was subsequently so closely involved with the company’s activities that in any legal action involving the company he is likely to be classed as a “shadow director”. But being a friend of Keene’s it is perhaps not so very surprising that he kept his mouth shut. More bizarre is the behaviour of Dr Irving Finkel, a deputy keeper of antiquities in the Western Asiatic Department of the British Museum. Finkel is a friend of Keene’s and a man of many and varied interests, including ancient magic and the history of board games. Finkel’s fees from BGN for being a director of the company were set at £7,500 p.a. – it is difficult to understand why he would keep quiet over so much for so little. Another director at the time, Michael Gelb, is yet another friend of Keene’s. Gelb lives in Chevy Chase, Maryland, he visits London only occasionally and, I suspect, was most likely unaware of what was going on in the company.

    Hanley’s own director’s fees were agreed at £12,500 p.a., not a vast sum for one so prominent. He has certainly given BGN its money’s worth, having been the public face of the company since its launch and presiding over the press conference in April 2000 when the Kasparov-Kramnik chess match was formally announced. In BGN’s first annual return, lodged at Companies House, Hanley was not acknowledged as being the beneficial owner of any shares in the company (nor were Finkel or Gelb). There were, however, 19 blocks of shares held by various nominees in Switzerland, the British Virgin Islands, Guernsey and elsewhere, and it is not easy to identify the beneficial owners of most of these nominee accounts.

    Only one person in BGN had the courage to raise the question of fraud. Suzanne Martin, who was appointed Chief Executive Officer in mid-July 2000, came across a mass of documents in December 2000 that revealed the fraudulent transactions. But when she attempted to bring these matters out into the open in company meetings she was muzzled. So Martin turned to her solicitor who advised her to inform the police, which she did in mid-February 2001, having been fired on February 9th. Eleven days later Brain Games obtained a court order, compelling Martin to give up any company documents in her possession. Naturally this included any documents that could vindicate her allegations and prove anyone’s guilt. Martin has since launched an Employment Tribunal action against the company, due to be heard on January 14th and 15th.

    Last year the police investigated Brain Games Network plc for possible money laundering and they interviewed Sir Jeremy Hanley. They found no evidence of money laundering and indeed there seems to be no reason why they should. What has been happening in BGN appears to be far simpler. It is fraud. But the evidence of this fraud only became publicly available when BGN’s first annual return was sent to Companies House in September, some time after the police investigation had been suspended. Now, with this new evidence becoming public, the police may need to think again.

    In the meantime it appears to be business as usual for BGN. At an Extraordinary General Meeting held on December 18th, the company passed motions to retrospectively “ratify” the fraudulent transactions, though exactly how the word “ratify” can be used for transactions completed more than 18 months ago is difficult to understand. The company also plans to change its status from a plc (public company) to a private limited company, then to hive off assets into an offshoot called Brain Games Asia (which is registered in the British Virgin Islands) and to “reverse” into Einstein Group plc, a company quoted on London’s Alternative Investment Market. This particular brand of magic, if successful, will leave the current holders of BGN’s worthless shares owning instead some tradable stock in Einstein, possibly worth as much as £1 million. All this while BGN is being pursued, not only by Martin but also by some angry creditors. The fashionable London club, Home House, was awarded judgement against BGN at Central London County Court on October 25th, over the non-payment of £31,085.37p owed for the opening and closing parties of the Kasparov-Kramnik chess match one year ago. (Case number: CL108400. Brain Games Network plc has lodged an appeal, due to be heard on January 23rd.) Another thorn in the company’s side is Apco Asia Ltd, a Hong Kong company that was involved in Brain Games’ “sponsorship” of a major Chinese Chess tournament last June. (Chinese Chess, which differs from the western form of the game, is probably the world’s most popular board game, being played by half the population of China.) Apco Asia has been pressing for payment of invoices going back more than one year and totalling US$92,945.96 (approximately £64,000).

    As it happens I am a stockholder in Einstein Group plc and am therefore entitled to ask reasonable questions about the company’s activities. In that capacity I wrote to Einstein’s CEO, Steve Timmins, on December 13th 2001, asking how his company could be seriously considering the acquisition of BGN and listing many of the reasons why, in my view, it should not happen (principally the frauds described above). I copied the letter to all of the individuals listed as being directors of Einstein Group plc, as well as to the company that advises Einstein and to the UK Financial Services Authority. Around lunchtime on December 17th I received a letter from Atlantic Law, a firm of solicitors acting for BGN. They said of my letter of December 13th: “… quite apart from being wholly untrue, is seriously defamatory of Braingames Network Plc for whom we act and a number of parties associated with it.”

    Atlantic Law’s letter gave me until the close of business that day, i.e. some 4 hours later, to “… retract in writing all of the allegations made in your letter …. not to repeat or publish such allegations in any form whatsoever and to make a contribution of £1,000 to a charity of Braingames’ choice…Should you not do so we are instructed to bring injunctive proceedings against you without further notice on Tuesday morning [i.e. the following day – DL] in the High Court…..”

    Receiving a lawyer’s letter was not wholly unexpected and I was therefore not exactly quaking with fear when I discussed the matter by telephone with one of the partners at my own solicitors. I then sent the following reply by fax, so as to arrive in time for Atlantic Law’s “close of business” deadline. [The notes in square brackets, marked “-DL”, are corrections and an addition for this article.]