Saturday, February 28, 2009

Spectre of John McCabe returns to haunt increasing numbers of Scots fraudster lawyers

The ghosts of the early 1990s return to haunt Scotland’s legal profession, as the numbers of solicitors charged in connection with mortgage fraud & buy-to-let scams increases … but we have been here before … John McCabe … the one time ‘high flying’ partner of the defunct Scott Moncrieff & Dove Lockhart was engaged in exactly the same frauds nearly twenty years ago …

Funny, the Law Society of Scotland said it could never happen again .. (but it did, and again & again & again and now !– Ed)

Even stranger, the people in charge of the Law Society departments policing the profession during McCabe’s reign of fraud, are still in their same positions today .. Isn’t that a bit like keeping on Sir Fred Goodwin after the RBS had to be bailed out –Ed)

The Edinburgh News relives the glory years of fraud via John McCabe :

John McCabe: Solicitor left banks and building societies reeling

Published Date: 26 February 2009
By Gina Davidson

IT was the multi-million pound white-collar crime which knocked the stuffing out of the starched shirts of Edinburgh's legal profession.

When solicitor John McCabe was arrested at Heathrow after an attempted escape to Uruguay, it was revealed that he had lost almost £7 million through a catalogue of property frauds which left the city's banks and building societies reeling – and law firms the length and breadth of Scotland financially worse off.

McCabe perpetrated Scotland's biggest legal fraud over a period of seven years, becoming increasingly devious – even conning his wife – and damaging the reputation of and trust in his profession.

In a complex network of fraudulent transactions, he obtained, by lies and forgery, increasingly large loans on already mortgaged property, using the cash to expand his property empire and invest in nursing homes. But as property prices fell and interest rates rose in the late 1980s his debts spiralled and McCabe had to borrow more and more money. By November 1989, he was having to find £120,000 a month to keep up interest payments on loans.

Even his own house in the heart of Edinburgh's affluent New Town was not safe from his greed. The original loan on the Northumberland Street house was just £50,000, but in a series of further loans, on which he forged his wife's signature, he obtained a further £250,000.

The frauds only came to light after the Law Society carried out a routine examination of the books at the now dissolved Scott Moncrieff and Dove Lockhart firm, where McCabe was senior partner. In panic, knowing he was about to be found out, he fled to Uruguay after wiring £300,000 to a friend's bank account.

But the friend, sensing trouble, went to the British Consul, who established McCabe was under police investigation. The account was frozen and McCabe's money impounded by police. Destitute, he gave himself up and helped police unravel his web of fraud. The frauds totalled more than £4m and on top of those he had debts of more than £2m.

The whole fraudulent business began in 1983 when, as a 34-year-old, he decided to raise money on his own house. Borrowing almost £20,000 from the Skipton Building Society, he falsely claimed the cash was to be used to carry out "repairs and improvements" – and forged his wife Helen's signature.

For two years he was satisfied with that financial injection, but in 1985 he again borrowed £19,250 for the same purpose – and again forged his wife's signature.

The following year, in October, he forged her signature for a £54,698 mortgage from the Gateway Building Society to buy a house in Blantyre Terrace.

By 1987 he was stepping up his activities, desperate to become a property developer and enter the then-booming business of nursing homes. He applied for three more mortgages from three new building societies: £33,600 from the Halifax for a house in Maxwell Street, £63,826 from the Yorkshire for a house in Leamington Terrace and £40,000 from the Nationwide for the basement of his house in Northumberland Street. For the last two deals he again forged Helen's signature.

Then McCabe really went for it. In 1988 he borrowed a total of £1,005,136 from ten different agencies. This time he only forged his wife's signature once, but variously stated to the building societies and banks that he had only one on-going mortgage, or none at all.

And he was believed. The banks and building societies accepted what he told them, partly because, while he had not recorded the titles of the properties on which he held mortgages, his word, as senior partner in a reputable firm of solicitors, was considered good enough.

By the end of 1988, McCabe had 11 mortgages on eight properties.

Then in 1989 McCabe went back to the Skipton to raise a further £60,000 on his Northumberland Street home and took another £30,000 mortgage with the Newcastle for a property in Easter Road. He also approached the Jedburgh branch of the Bank of Scotland for a £150,000 term loan, supposedly to inject capital into a company called Peter Moffat (Potatoes). He offered four properties as security without mentioning existing mortgages on them.

In the same month he got an overdraft of £390,000 from the Clydesdale Bank to convert the Leamington Terrace properties into a nursing home, pretending again that there were no existing overdrafts, mortgages or loans.

But McCabe's guest houses and nursing homes were not proving the goldmines he expected them to be, and his debts were growing all the time.

In December that year came his biggest deals yet. On the 6th, he obtained a commercial mortgage from the Alliance & Leicester of £534,870, supposedly with a business associate, to buy a property in Eglinton Crescent. Ten days later, he applied for another commercial mortgage from the Newcastle, for the same house, and got £504,000.

But the Newcastle would not agree to allow him to act for them as well as himself due to a potential conflict of interest in the deal, but asked Edinburgh solicitors JC&S Stewart to act for them.

McCabe's wife Helen was a partner in JC&S Stewart and was given the task of handling this mortgage. She failed to record the title, but instead handed the deed and the file to her husband (later the Newcastle successfully sued JC&S Stewart for negligence).

It was obvious that by this stage McCabe was a desperate man who was prepared to throw away his wife's career to save his own skin.

In 1989 alone, McCabe obtained £1,668,870 from two banks and three building societies and was already paying £120,000 a month in interest on loans. Roughly calculated, at the rates then current on property loans, he would have to have debts of around £7m to incur this amount of interest.

The total amount of fraud for which he was eventually tried, however, was £4,075,226. And that includes further phenomenal borrowings in 1990.

By this time, he must have realised the game was up and decided to go out with a bang. In 1990 his borrowings totalled £1,323,000, with eight mortgages taken out: four on one house in Belford Court, two more on the Blantyre Terrace house (making four mortgages on that property altogether), one "remortgage", one for garage premises and one plot of land. Ten agencies were deceived.

The "improvements" at Northumberland Street reached their peak in June when he again applied to the Skipton for a loan of £118,000 – and got it. A spokesman for the Skipton later said that as long as the client provided proper security, a valuation and proof of income, the loans he had received, totalling £243,000 in seven years, were perfectly acceptable practice.

Eventually realising the game was up, McCabe fled to Uruguay at the end of 1990. But the money he had sent on came back to Scotland – and so did he.

He made a full confession to debts of more than £4m, nearer £5m with interest. He also had personal debts of around £2m. Unsurprisingly when the facts were revealed, there was speculation about gold-plated Jacuzzis and air-conditioned wine cellars, though it appears that the McCabes did not have an ostentatious lifestyle.

What McCabe's case illustrated at the time were the long delays in the recording of title deeds. As long as the properties he mortgaged were not recorded, building societies and banks could not discover that he had already mortgaged them.

McCabe was sentenced in 1991 to ten years in jail after admitting 34 charges of fraud.

Where did all the money go? None of it was ever retrieved and £4m, at least, was said to have gone on business failures and interest payments.

His wife Helen claimed at that time that she had acted under duress from her husband, and knew nothing about his affairs. But she was later found guilty of professional misconduct by the Scottish Solicitors Discipline Tribunal and censured over two cases involving building society loans to her husband.

She was also later evicted from 52 Northumberland Street as their home had been left encumbered by mortgage arrears of more than £660,000.

And because McCabe was declared bankrupt, the Law Society of Scotland's guarantee fund, to which all solicitors have to contribute, had to pay out to meet the claims for compensation by victims of the dishonest lawyer. As a result, every solicitors practice in Scotland that year had to pay £900 to the fund.

Perhaps it was Robert Henderson QC, for McCabe, who summed up the case best when he said his client had been an unqualified success as a lawyer but a complete failure in his efforts to branch out into business.

"He was out of his depth and as he became more and more desperate for money, the frauds multiplied. It was a case of fraud on fraud on fraud," he said.

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