Crime
Essentially, the defendants were to buy shares in Guinness plc, and by supporting the share price Guinness would be able to take over Distillers, a much larger company. The Distillers board favoured Guinness as partners and were facing a hostile bid by Argyll. In guaranteeing without limit the defendants' losses if the value of their Guinness shares dropped, the defendants were seen to have an unfair advantage in what should be a fair market. The prosecution relied on a new law; the defendants claimed that supporting a share price with a guarantee was an unusual but longstanding market practice.
Saunders had raised US$100 million which was advanced to Boesky to invest in shares; it was said that managing this amount was Boesky's reward for supporting the Guinness share price. Saunders was said to have misdescribed this sum in Guinness's accounts, though some believed that it was properly an off-balance sheet item. At that time, $100 million was a very large percentage of Guinness's annual profits. Boesky was charged in New York on another matter, and mentioned this payment under questioning. This was passed on to the DTI corporate inspectorate in London, leading to an investigation in which Saunders' other secret share price support arrangements were unravelled. It also emerged that Saunders' arrangements had not been revealed to, nor sanctioned by, the Guinness board.
All told, Guinness paid $38 million to 11 companies in at least six countries to buy $300 million worth of Guinness stock. Half of the stock was bought by Bank Leu. Saunders had formerly been a senior executive at the Swiss firm Nestlé.
When the Distillers takeover was completed, Guinness plc also paid a £5.2million success fee to a Guinness director, American lawyer Tom Ward, but this was paid in such a way that it was alleged that Saunders had himself had been secretly paid much of the fee outside Britain by Ward. The matter was examined in Guinness plc v Saunders, a UK company law case distinct from the criminal cases, and Ward was ordered to return the fee to Guinness plc.
Read more about this topic: Guinness Share-trading Fraud
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