NatWest Three

The NatWest Three, also known as the Enron Three, are the British businessmen Giles Darby, David Bermingham and Gary Mulgrew. In 2002, they were indicted in Houston, Texas, on seven counts of wire fraud against their former employer, Greenwich NatWest, as part of the Enron scandal.
After a high-profile battle in the British courts, the three men were extradited from the United Kingdom to the United States in 2006. On 28 November 2007, each pleaded guilty to one count of wire fraud in exchange for the other charges being dropped. On 22 February 2008, they were each sentenced to 37 months in prison. Initially they were jailed in the US, but were later repatriated to British prisons to serve out the rest of their sentences. They were released from custody in August 2010.

Background

In 2000, Giles Darby, David Bermingham and Gary Mulgrew worked for Greenwich NatWest, then a unit of National Westminster Bank, which was later acquired by Royal Bank of Scotland. The three were involved in Greenwich NatWest's dealings with the American energy company Enron. As a result of these dealings, NatWest owned a stake in a Cayman Islands-registered partnership, Swap Sub.
Swap Sub was a special-purpose entity created by Andrew Fastow, Enron's CFO, ostensibly for the purpose of hedging Enron's investment in Rhythms NetConnections, an internet service provider. Swap Sub's assets consisted of cash and Enron stock. Its liability was an option giving Enron the ability to require it to buy Enron's entire investment in Rhythms NetConnections at a predetermined price in 2004. In addition to NatWest, Credit Suisse First Boston held an equal stake in Swap Sub. The remainder was owned by a partnership managed by Fastow.
In March 2000, Enron terminated the hedging arrangement with Swap Sub. Fastow persuaded Enron to pay Swap Sub a $30 million fee to terminate the option and recover the Enron stock it owned, even though, because of a decline in the price of the Rhythms stock, Swap Sub owed Enron a large amount of money. $10 million of the payment went to Credit Suisse First Boston; Fastow falsely claimed to Enron that the other $20 million would go to NatWest, but in fact only $1 million did so. The payment, which was formally agreed on 22 March 2000, resulted in large profits for Swap Sub, enriching several Enron employees who had acquired ownership interests in the partnership.

Crime

According to the Statement of Facts which was signed by all three defendants as part of their eventual plea bargain, the Three realized in early 2000 that, because of rises in the stock prices of Enron and Rhythms, NatWest's interest in Swap Sub "had quite some value". On 22 February of that year, the three bankers made a presentation to Enron CFO Andrew Fastow suggesting ways in which this value could be captured; however, Fastow ultimately rejected this proposal.
Shortly afterwards, Fastow contacted Gary Mulgrew in late February or early March 2000 and offered to purchase NatWest's interest in Swap Sub. He also offered Mulgrew what is described in the Statement of Facts as "an unspecified financial opportunity" if he were to leave NatWest. Mulgrew discussed this conversation with Darby and Bermingham. On 6 March 2000, Fastow's assistant Michael Kopper contacted Darby with a formal proposal that a company Kopper controlled should purchase NatWest's stake in Swap Sub for $1 million. Mulgrew and Darby subsequently recommended to their superiors that NatWest should accept this offer.
Later that month, the three bankers learned that the "unspecified financial opportunity" which had been mentioned to Mulgrew involved their personally acquiring a portion of NatWest's stake in Swap Sub. In furtherance of this, Kopper set up a deal for the Three to acquire a put option on half of NatWest's former stake in the company. On 17 March, Darby collected the signatures needed to finalize the NatWest sale. On 20 March the Three executed the option agreement with Kopper. The Three concealed both their dealings with Fastow and Kopper, and the fact that they now had a financial interest in the company that bought Swap Sub, from their superiors at NatWest.
According to the Statement of Facts, the Three were unaware of the 22 March agreement to pay $30 million to Swap Sub. On 21 April 2000, Bermingham, who had resigned from NatWest in the meantime, exercised the options, resulting in a profit of more than $7 million. He subsequently split the proceeds with Darby and Mulgrew.

Timeline of legal proceedings

FSA investigation

In November 2001 the three bankers, having now moved to work at Royal Bank of Canada, learned that the US Securities and Exchange Commission was investigating Fastow and voluntarily met with the British Financial Services Authority to discuss the deal. According to their own account, the Three initiated this meeting in order to "ensure transparency". Bermingham later claimed that "e gave everything because we thought we had nothing to hide."
In February 2002 the FSA completed its inquiries without taking any action. It later emerged that the FSA had passed the results of its investigation to the SEC, which had in turn passed them on to the prosecutors in the US Department of Justice. According to a report in The Times the FSA report was so detailed that it told the SEC whom to interview and what evidence would be needed to secure a conviction, and concluded that "there appears to be evidence that the three individuals were subject to a major conflict of interest".

Issue of arrest warrants and indictment

US arrest warrants for the Three were issued in June 2002. They were indicted by a grand jury in Houston, Texas in September of the same year on seven counts of wire fraud. The warrants were among the first issued by Enron prosecutors; media reports speculated that their main purpose was to induce the Three into a plea bargain whereby they would testify against Kopper and Fastow in exchange for reduced sentences.
During the long delay caused by the decision of the Three to fight extradition, however, Kopper and Fastow both pleaded guilty and entered into plea bargains themselves. Thus, in an ironic turn of events, Kopper and Fastow were likely to have been the key prosecution witnesses against the Three if the case had gone to trial.
The indictment set out seven counts of wire fraud, each one corresponding to a document that was transmitted electronically in the United States in furtherance of the alleged fraudulent scheme. In addition to the facts agreed to as part of the eventual plea bargain, the indictment alleged that the Three knew, at the time they recommended the sale of Swap Sub to NatWest, that its value was significantly greater than $1 million, and that the 22 February presentation to Fastow was part of the fraudulent scheme. Although Enron officials were involved, the indictment did not allege that Enron Corporation itself was a victim of the scheme, or that the Three's activities had any connection to Enron's collapse.
The evidence against the NatWest Three included preparations for the 22 February presentation, which contained the phrase

Problem is that it is too obvious what is happening, so probably not attractive. Also no certainty of making money...

Prosecutors alleged that the use of the word "robbery" in the presentation showed that the Three knew that they were planning to commit a crime. They also cited the discrepancy between the amounts of money accepted by NatWest and Credit Suisse First Boston for their equal stakes in Swap Sub.

Extradition to the United States

US prosecutors began to pursue proceedings in what they expected to be a "routine" extradition in the summer of 2002. The Three were arrested in Britain on 23 April 2004. Extradition proceedings under the Extradition Act 2003 commenced in June of that year amid widespread [|controversy].
In September 2004 a judge at Bow Street Magistrates' Court ruled that the extradition could proceed. The Three responded by suing Britain's Serious Fraud Office in the High Court of Justice, seeking judicial review to force a prosecution in the UK which would have taken precedence over the US investigation.
In response the SFO issued a statement defending its decision to defer to prosecutors in the US:
After a significant delay, the extradition was endorsed by Home Secretary Charles Clarke in May 2005. The Three appealed this decision also in the High Court. On 20 February 2006 both the appeal against extradition and the suit to force the SFO to prosecute were rejected by the High Court. The bankers appealed further to the House of Lords, but this appeal failed on 21 June 2006. On 27 June 2006 the Three lost an appeal to the European Court of Human Rights. Rumours in the British press that the government would support the Three's case were rejected by Attorney General Lord Goldsmith on 7 July 2006.

Initial court proceedings in the United States

After all legal avenues of appeal against extradition had been exhausted, the Three arrived in Houston on 13 July 2006. They spent one night in that city's Federal Detention Center before being released into the custody of their attorney, under a requirement that they wear electronic monitoring devices. On 21 July, a judge ruled that the Three could go free on bond but could not leave the Houston area, could not meet with each other without their lawyers present, and were required to raise between $80,000 and $150,000 by the end of the month. US immigration services gave them permission to accept employment in the US for a period of one year, but, because of the judge's order, they were not permitted to leave the Houston area to seek or obtain work.

Trial date postponements

On 2 August 2006 the trial date was delayed indefinitely from 13 September 2006, in order to allow two of the Three to secure legal representation. On 9 August 2006 the legal situation of the Three was complicated by subpoenas served on them in an Enron-related civil suit against Royal Bank of Canada. On 12 August 2006 all three informed the judge that they had retained attorneys.
On 6 September 2006, the trial date was set for February 2007 if witnesses could be obtained in time, failing that for 4 September 2007. Until that time the Three were required to wear monitoring devices and were forbidden from leaving the Houston area. On 1 August 2007, the trial date was moved back yet again to January 2008. This was following another earlier postponement to 22 October. This further delay was a significant blow to the three, and their supporters stressed again the problems they were facing with the scale of legal fees and further separation from their families in the UK.