Carbon credit fraud trials at risk of collapse due to expert witness not being expert

It was revealed last week that a carbon credit and diamond fraud trial has collapsed, and that a number of existing convictions are now at risk, due to an expert witness used by the prosecution turning out not to be much of an expert after all.

Carbon credit scams were the cryptocurrency scam of the early 2010s. The setup was simple and age-old: take an asset that the man on the street is vaguely aware has some sort of value, but no idea how much value, and sell it to him for massively more than it is actually worth, on the pretense it will be worth a lot more in the future.

It is a variant of scams involving fine wine, art or whisky, where again you sell something for massively more than it is worth on the basis it will be worth more in the future. Carbon credits and more recently cryptocurrency gave the scam an added layer of mystique, thanks to the fact that the asset was relatively new.

It should be emphasised that the defendants in this case are innocent of running the type of scam described above.

Andrew Ager was used as an expert witness in 20 trials and up to 50 police investigations to tell courts there were no secondary markets in carbon credits.

In a trial against eight men accused of defrauding investors out of £3.5 million, it turned out upon cross-examination that Ager, according to The Times,

had admitted that he had no relevant academic qualifications and although he claimed to have taken three A-levels he could not recall if he had passed any.

He had not read any books about the carbon credit markets, had not kept any record of the material given to him by the police, had lost some sensitive material, and other papers had been damaged by a “leak”. He allegedly tried to dissuade Marius Frunza, who has a PhD from Sorbonne university, from giving evidence on behalf of the defence by telling him misleading information about the case.

On the back of this, the defence team for one of the accused made further applications to establish the extent of disclosure failings. The prosecution disclosed that they had also held damaging material about another expert witness which it had not disclosed to the defence. The prosecution then threw in the towel before police officers or CPS lawyers could be cross-examined.

The convictions of an unspecified number of people who have successfully been convicted of running carbon credit scams in trials which also involved testimony from Ager are now in doubt. The Crown Prosecution Service is to conduct a review of all such cases.

What was the expert witness there for?

An alleged commodity scam is not complicated. If you can prove that

  • the defendants cold-called people and sold them carbon credits at a massive markup to their actual value
  • the defendants claimed that the carbon credits had a material chance of being worth significantly more than the investors were paying

then you have your fraud case. They rang people up, they said that carbon credits would go to the moon, they took their money. False representation, personal gain, done.

(Again, I will emphasise that the defendants in this case have established in court that they did no such thing.)

The key is not speculation about the future value of carbon credits but the market value of the carbon credits at the time they were sold, compared to the amount investors paid for them. If you pay someone market value for a commodity plus a reasonable dealing charge, then you’re taking a calculated risk that it may go up in the future. If you pay a markup of many times its market value then the chance of it going up in the future for you falls to virtually nil, and the accused must reasonably have known this.

What the market value of a carbon credit or diamond was at the time is what an expert witness may be needed for. It shouldn’t be that difficult to find someone who actually is an authority.

Whether there were or were not secondary markets in carbon credits should have been largely immaterial to the prosecution’s case. In any commodity scam, the price the victim pays for the asset is massively in excess of its value, and they stand no realistic chance of ever selling it for more than they paid for it, whether there is a market to sell them on or not.

Many fraud trials are complicated but this was not one of them. The Tesco accounting trial (where not even the SFO seemed to know who they were accusing of what) was complicated. The NatWest Three (involving a corporate finance shell game with Enron where even the victim couldn’t work out whether they’d been defrauded) was complicated.

A carbon credit fraud case is not. Either the accused lied about the value of what they sold to the alleged victim or they didn’t.

But carbon credit trials are also apparently not considered important enough for a basic level of attention to detail. If the defence could work out that Ager had no qualifications and was so flaky he couldn’t even remember how many A-levels he had, then so could the Crown Prosecution Service.

The collapse of the trial on such a simple and tangential point emphasises that fraud in the UK is not far off being one of those offences like shaking a carpet in the street or breaking an egg on the sharp end. Technically on the books but in reality non-existent. Except on the level of fake builders conning little old ladies out of a few thousand in aggregate, or accountants with gambling problems dipping into the till.

A fraud is simply a failed investment that wasn’t big enough to be too difficult for the authorities to prosecute.

Footnote

City of London police are probably not the only ones fuming about the collapse of the trial.

Those who have in the past been successfully convicted of fraud in trials involving Ager’s testimony must now be asking their lawyers: if Ager collapsed on the stand so quickly, why the hell didn’t you cross examine him properly when I was in the dock?

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