In a 12 months rocked by increasing numbers of telecoms and
repro scandals, the leasing industry needs to unite in a fight
against wrong-doing in 2010, reports Brendan Malkin
Around Britain, thousands of
organisations, including schools, charities and doctors’ surgeries,
as well as small and mid-sized businesses, claim they face
significant losses as a result of being falsely induced into
signing up to telecoms and reprographic leasing deals.
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Such is the scale of the scandal that it has
now become one of national concern. The police, the investigations
arm of the UK Department for Business Innovations and Skills,
anti-fraud organisations and criminal justice prosecutors have all
been drafted in to sort out the mess and bring the perpetrators to
justice.
Given the recent emergence of a string of
cases linked to these scams, the scale of the problem appears to be
unprecedented in UK leasing.
This month, four directors of a Norfolk-based
telecoms supplier, Business Telecom, are due to appear in court for
the start of a four-to-six weeks’ trial. Charged with conspiracy to
defraud, they are accused of inducing businesses to enter into
lease agreements through use of false representations.
In another case to hit the industry, a company
sued by Investec for failing to keep up with lease rentals won its
legal action against the lessor. The case, heard at Worcester Crown
Court last month, is now a leading case in the law of lease
assignment (see comment piece on opposite page).
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By GlobalDataTelecoms supplier, BC Telecom, has become the
subject of an investigation by Hertfordshire trading standards, it
emerged last month.
A significant number of BC Telecom customers
claim they were induced into signing up to lengthy and expensive
lease agreements which they were originally told would be free of
charge. Besides small businesses, other alleged victims of BC
Telecom include schools, doctors’ surgeries, and even a care
home.
Debacle
Most UK lessors will be familiar with the
Global Telecoms & Technology debacle. After Global’s collapse
in February, hundreds of customers stopped making their lease
payments, claiming they had been led to believe rental of their
line connection, which had been stopped, was part of their lease
agreements.
A watching eye: with scams on the rise, the industry needs to be
vigilant
Last month, Leasing Life learned that the
Finance & Leasing Association (FLA) had been tipped-off by
Leeds-based independent audit company, Leasechecker, that “a number
of reprographic supplier companies have allegedly mis-sold
reprographic lease contracts”.
In a letter to Stephen Sklaroff, the FLA’s
director general, Leasechecker’s legal department wrote that these
companies “knowingly represented to those organisations that
machinery installed at their premises in accordance with a lease
and business finance agreement were new when in fact the machine(s)
were either not new, second-hand or refurbished and represented the
same to funders in order to secure borrowing.”
The major anti-fraud unit in Malton, north
Yorkshire, which has received details of the claims, is said to
have told Leasechecker that the suppliers’ actions potentially
“amount to criminal deception”.
Leasing Life has also learned that an alleged
leasing fraud by a photocopier salesman has resulted in the
bankruptcy of Clifford Bartlett, owner of Huntingdon-based music
publisher and seller King’s Music.
The case involved “irregularities in the
leasing of successive photocopiers by an individual to King’s Music
over several years”. At least one leasing company is understood to
be pursuing Bartlett for a total sum of around £1.5 million (€1.7
million). Bartlett, a distinguished early music scholar, declined
to comment on the case while investigations continue.
The backlash against these alleged scams is
not just being led by law enforcement bodies.
Hundreds of customers have stopped paying
their lease rentals and, faced with breaches of contract claims
from their leasing companies, some have launched litigation of
their own, directed at either the leasing companies, brokers or,
more usually, the suppliers.
Keen to clean up the image of their industry,
some telecoms suppliers have taken matters into their own hands.
One of them, O-bit Telecom, issued a statement in recent weeks
warning customers to “never, ever lease telephone lines and calls”
and to “always pay for these as per your normal monthly use”.
O-bit’s CEO, Dave Breith, who also warns
customers to better “understand the cost of equipment”, is in
discussions with a large lessor with experience in telecoms to
advise customers on alternatives to leasing.
The scale of the losses arising out of these
scandals for both customers, as well as leasing companies, is said
to be significant, with individual leasing contracts linked to
reprographic and phone scams each totalling in excess of
£40,000.
Due to the effects the scandals have had on
the leasing industry, the FLA has responded by launching a new code
of conduct outlawing the use of side agreements in leasing
deals.
Too little, too late
Given that the worst of the problems have
already occurred, these reforms might be too little, too late,
however.
Many in the industry feel the scams should
have been stopped months ago. There are some grounds for this
belief, particularly given the fact the scams are fairly similar
and, therefore, could have been identified and clamped-down upon
much earlier.
For example, it was common in many of these
deals for suppliers to use alleged false inducements to convince
customer victims to sign up to lengthy leasing contracts. One such
inducement, used to add legitimacy to their deals, involved
suppliers’ sales agents pretending they were agents of British
Telecom (BT).
The defendants in the Business Telecom case
are accused of “falsely representing that Business Telecom was
connected wi th, or the business arm of, British Telecom PLC”.
Similarly, customers of BC Telecom also claim
the supplier’s sales representatives pretended they were acting as
agents of BT. This was confirmed in a letter sent recently to one
customer of BC Telecom from Bernadette M Mee, a senior IP lawyer
and head of trade marks at BT’s legal department.
It stated: “A salesman from a company called
BC Telecom Limited, was misrepresenting his company’s relationship
with BT and thus infringing BT’s trademark rights.”
Another common inducement, allegedly used by
sales agents of both BC Telecoms and Business Telecoms, was to tell
customers their telephone lines and equipment were about to be made
obsolete due to digitisation of the network and therefore had to
switch over to the new systems by law. Finally, suppliers also
falsely claimed to customers that they would not have to pay for
their lease agreements.
The suppliers would then give their customers
a cheque to cover the first year of the agreement, only for them to
disappear soon afterwards into administration or liquidation,
leaving customers lumbered with lengthy lease agreements. In
response, many disgruntled customers have stopped paying these
rentals.
Despite evidence showing customers were
clearly induced into signing up to the lease agreements, lessors in
many cases are still observing the letter of the law and pursuing
claims against non-paying customers.
For instance, ING Lease UK is understood to be
seeking to enforce a £33,000 lease contract linked to BC Telecom
with Martins House, a residential care home in Stevenage run by a
charity. As in the case of other customers allegedly swindled by BC
Telecoms, the home believed the phones would be free.
Another common feature of many of these phone
deals is that the real value of the equipment bore little relation
to the customers’ liability under the lease agreements. In the
Global Telecoms case, for instance, equipment worth less than
£2,000 was sometimes leased for in excess of £40,000 over seven
years.
The fact the useful working life of these
assets is far shorter than seven years makes these deals seem
particularly bizarre.
Complex web
Another bizarre feature of these
phone deals was the complex web of companies and transactions that
were involved in what was otherwise the relatively simple matter of
leasing phones.
For instance, one customer who thought its
supplier was BC Telecom later received a letter from Siemens
Financial Services, his leasing company, stating that in fact a
company called Clearcall 2000 was the supplier of the
equipment.
Nonetheless, as part of its agreement of
providing free phone equipment, it was still down to BC Telecom to
pay the customer “£3,600 per annum [to] cover the cost of all the
telephone equipment [including installation]”. Exactly who paid BC
this £3,600 was not made clear, however.
