03 Feb 2012, as published by Financial News [ http://bit.ly/HbjvJ3 ]
Gary Mulgrew is one of the NatWest Three, a trio of British bankers sent to prison after the collapse of Enron more than a decade ago. As public outrage over bank pay gathers force, he told Financial News that “banker bashing” has gone too far. Despite this, he said the industry needs tougher regulation.
As one of the NatWest Three – who also comprised of David Bermingham and Giles Darby – Mulgrew worked at NatWest’s wholesale arm Greenwich NatWest, which is now part of the Royal Bank of Scotland Group.
They were alleged to have bought an interest in an Enron special purpose vehicle in March 2000, which they had recommended NatWest, their employer, sell. A few weeks after the deal, they are alleged to have sold their stake at a profit.
At the time of the Enron scandal in late 2001, Mulgrew, Bermingham and Darby approached the UK Financial Services Authority about their deal with Enron. The FSA completed an inquiry into their deal without taking any action in 2002. The regulator passed its findings to the SEC, which passed the findings to the US Department of Justice.
The trio were then indicted in the US in 2002 on charges of fraud. In 2006, they were extradited to the US and were sentenced to 37 months in prison in February 2008. They were released in August 2010.
Financial News: What are your thoughts about your conviction?
Gary Mulgrew: “As a matter of law I’m guilty, but to me it’s a load of shite.
“What I pleaded guilty to was almost exactly what I sat down and told the FSA, there was no intent to commit a criminal act.
“The Enron link was a stretched connection. It just so happened that the CFO of Enron was the guy who put the deal together but it had nothing to do with the collapse of Enron. Our case became a much more political thing, for the US to show it can extradite people without evidence.
“When you sign that guilty plea though you waive your rights to appeal in perpetuity, for life. We did this for the price that they would promise to transfer us home much quicker. I think, if we’d appealed, that it would’ve been kicked out in a couple of minutes because it’s a load of bollocks.”
FN: Do you regret what you did?
GM: “Massively. I’ve lost my daughter. [His first wife left him in the aftermath of the conviction, taking custody of their daughter]. If I hadn’t done that stupid deal, I’m sure I’d still have her in my life. The ramifications in my personal life were enormous.
“If I had the opportunity for that deal 100 times over I would’ve done it though. You’ve got a 36-year-old CFO of the USA’s greatest company offering it to you, he wasn’t seen as a criminal by anyone. Enron was on the front of Time Magazine.
“I guess I was flattered, and I’m a bit embarrassed by that now. You get seduced by some Ivy League hotshot; nice teeth, beautiful hair, well educated. Americans come across very well. You’re offered a silent transaction with him and you’re flattered, you think: ‘why’s he offering this to me, Gary Mulgrew’.”
FN: David Bermingham said the deal you did was “unethical”, do you agree?
GM: “Not at all. I wouldn’t say it was unethical, even to this day. Silent investments with clients are not that unusual. They don’t happen every day but they’re not unusual. There was a second vehicle with [Enron CFO Andrew] Fastow that had about 300 bankers invested in it.”
FN: When Enron collapsed policymakers rushed to legislate to prevent future failures. Since then, we’ve had the financial crisis. Was enough done and can we do more?
GM: “I’ve always believed that the Enron case was a missed opportunity. At that time, there were over leveraged companies, there was poor regulation, and accounting practices had gone too far.
“It was an opportunity to regulate the market properly and bring in better regulation to stop that amount of leverage and racy accounting practices.
“Bush and Blair both wanted to say the market was great, though. There was a famous speech by Bush saying there was nothing wrong with the market – just that there were some bad guys and they’re going to jail. He tried to pinpoint individuals rather than systemic problems and I think that was an opportunity missed. The next crisis came as a direct result of the lack or regulation of the previous four or five years.”
FN: What regulations need to be brought in?
GM: “A core one, going back to Glass-Steagall…”
FN: So would you support the UK’s Independent Commission on Banking recommendations to partially-separate retail banking from investment banking?
GM: “I would support it but think it’s got to happen at a global level, if you just do it in the UK we become uncompetitive here. As a country we can’t afford that – the financial sector remains absolutely critical and we can’t regulate ourselves out of competitiveness.
“But everyone can see it’s logical that you shouldn’t be gambling normal depositors’ money, because when you do that you undermine the confidence you need on the street to keep banking working.”
FN: How do you feel about the public image of bankers today?
GM: “It’s gone too far. It’s a bit of a frenzy now. People have to understand that the British economy relies on the financial sector a great deal. I think it is a bit distasteful when you see some of the bonuses that people get but we have to be able to compete in a global market.
“I remember when I started in banking, starting after university. I was really proud. It was seen as a good job with status. It had dignity. It’s gone way too far the other way now.”
FN: Are you able to return to banking, and would you want to?
GM: “There’s nothing stopping me, although I can’t see it. I’ve been out of it for 10 years now, it moves very fast. I can’t imagine why anyone would want to employ me.”
FN: What are you doing now?
GM: “I’ve got a job with a building company in Lewes, Sussex, as a consultant. I also have an interest in a bar in Brighton we’re setting up.”
– Gary Mulgrew has written a book about his time in prison titled ‘Gang of One’. Published by Hodder & Stoughton, it is available now.
– Write to Richard Partington at firstname.lastname@example.org