London firm 'was link in US banking fraud case'
By James Moore, Financial Correspondent (Filed: 27/09/2005)
 

A City-based securities broker run by a direct descendent of the Duke of Wellington has been named as the company used as the London link in an alleged $101m banking fraud involving collapsed hedge fund Bayou.

Court papers filed by the Arizona Attorney General Office say $101m of funds in the name of Majestic Capital Management were deposited with London-based ODL Securities, run by Graham Wellesley, who holds the title Viscount Dangan, before they were sent on to US bank Wachovia from where they were seized on May 19.

	Graham Wellesley had been concerned about the funds

In the papers, the attorney-general said US courts had "probable cause that the seized funds were in the process of being used in a fraud on various financial institutions".

The decision to seize the funds was opposed by lawyers representing Bayou, which is being sued by the US Government.

The US authorities allege that the hedge fund was involved in a "massive fraud" since 1998, barely a year after opening for business.

The State of Arizona said it had not yet confirmed that the $101m came from Bayou but is currently investigating their origin.

However, the statement said that the US Attorney for the Eastern District of New York believed that the funds were from Bayou and that the funds could soon be transferred to the US District Court.

Mr Wellesley yesterday said that ODL had been concerned about the funds as soon as it received them. He also that said the money was from Bayou.

He said: "Bayou opened an account with ODL and deposited $101m. They requested to do two different bond transactions both of which we refused to do. We reported suspicious activity to the Financial Services Authority."

Mr Wellesley also said that the company had not released the funds for transfer to Wachovia until it had received approval from the US authorities.

He added: "We blew the whistle on this. I think that this reflects well on our compliance procedures. ODL should be seen in a very good light in relation to Bayou."

Mr Wellesley said the company had sent a statement to its clients to inform them that it had raised its concerns about the Bayou funds with UK regulators.

ODL was founded in 1994 and specialises in derivatives trading and stockbroking. Mr Wellesley joined ODL, where he is executive chairman, in 2003 after leaving IFX Group, the spread betting company he founded. IFX was formerly the football pools operator Zetters.

Cameron Holmes, chief counsel for the financial remedies section of the Arizona Attorney General, said they had been alerted that the money had been placed in an account with a bank in the state by a US financial institution.

Mr Holmes would not comment on the identity of the institution.

A number of financial companies are under investigation by the Arizona District Attorney's office, but it is understood that ODL is not one of them.

Bayou, based in the state of Connecticut, is accused of attracting more than $440m from investors through bogus claims which also "lulled existing investors into retaining their investments in Bayou".

US authorities have called for tighter regulation of the hedge fund industry as a result of the scandal.