Two former pension trustees sentenced for illegal loans

Two former UK pension scheme trustees have received suspended sentences for making illegal loans of £236,000 from a company pension scheme to the scheme's employer, following a prosecution by The Pensions Regulator (TPR).

Company directors Andrew Kyprianou, 60, of Glebe Avenue, Enfield, Middlesex and Colin Werb, 72, of The Birches, Grimsgate, Diseworth, Derby, who had previously admitted two counts of making prohibited employer-related investments, were sentenced to 16 months in jail for each offence, suspended for two years, at Leeds Crown Court on 25 November.

They were also ordered to carry out 250 hours of unpaid work.

Prosecutors also told the court that the pair, directors of Eastman Staples Limited - founded in 1921 and one of Huddersfield's oldest and largest suppliers to the textile industry - fabricated minutes of meetings to disguise the loans as investments.

The pair had initially pleaded not guilty to the charges but changed their pleas at a hearing in August. Both defendants had also been charged with providing false or misleading information to TPR contrary to section 80 of the Pensions Act 2004. These counts will lie on file.

The court heard how banking facilities had been withdrawn because of the prosecution and Kyprianou had been given until the 16 December to repay £1.1million in loans.

Sentencing, Judge Mushtaq Khokhar said: "These are offences of a very serious nature because they involve a breach of trust."

Describing Kyprianou as "arrogant", the judge found that the defendants had put the pension scheme at risk by removing large sums of money from it, that they had failed to manage the potential conflict of interest in running a business and acting as trustee of the occupational pension scheme or sought appropriate professional advice about how to do so.

While accepting that Werb had played "second fiddle" and Kyprianou had driven the offending, he held both defendants to be equally culpable in how they performed their roles of trustee.

Khokhar told the pair they "ought to consider themselves lucky" they had not received an immediate prison sentence. He explained they had only avoided jail, and being disqualified as company directors, because of their guilty pleas, the money they had paid back to the scheme and the impact that might have on Kyprianou's businesses. 

Addressing Kyprianou, Kokhar explained: "It seems to me that there is the livelihood of other employees that are dependent on you. I accept the submission that given the difficulties that your businesses have with banking and the facilities being withdrawn in December you'll have to look elsewhere for those facilities and if you are incarcerated that might not be possible. In any case it will hamper the businesses' ability to stay on an even keel and will result in a loss of jobs."

Erica Carroll, TPR's director of enforcement, said: "Despite being experienced business people and having been warned by their adviser about payments between scheme and employer, Werb and Kyprianou continued to flout laws designed to protect pension savers.

"The pair, who were in a position of trust, recklessly used money meant for their staff's retirements to prop up their company despite the risk to the scheme - and their employees' pensions - if the employer failed.

"This case should serve as a reminder to all trustees on the rules around employer-related investments and a warning that we will prosecute those who ignore them."

The court heard how between 2017 and 2018 Kyprianou and Werb unlawfully paid £236,000 from Eastman Machine Company Limited Superannuation Scheme in the form of two loans to Eastman Staples Limited, contrary to section 40(5) of the Pensions Act 1995.

The first loan was for £96,000 in 2017 and a second, for £140,000, was paid out in March 2018.

In June 2018, TPR staff challenged Werb regarding the £96,000 payment only to be told it was being used as working capital for the business and was being repaid on a monthly basis with 5% interest. Werb failed to mention the payment of £140,000 made two months earlier.

Kyprianou had told TPR the money was withdrawn from the pension scheme and paid to the company to support it in the face of adverse effects caused by Britain leaving the European Union.

The court heard that in later interviews with TPR, Werb and Kyprianou both changed their story and said the payments were used as investments on behalf of the scheme in a disused church - St Stephen's, Rashcliffe, Huddersfield - with a view to potentially converting it into offices and a community space.

However, the church was not registered in the scheme's name and there was no independent evidence to support the defendants' assertions. TPR's investigators found several communications from Werb and Kyprianou which had described earlier payments from the scheme to the company as loans and some repayments from the employer to the scheme were made under the reference "Loan".

Since proceedings began, the defendants have sold the church and paid the proceeds of sale to the scheme. The court heard that following August's hearing and the sale of the church, £270,000 had been paid into the pension scheme which is now broadly fully funded on a buyout basis.

Both defendants were replaced as trustees of the pension scheme in by independent professional trustees, Pi Consulting Trustee Services, appointed by TPR in December 2020.

At the time the offences took place, the scheme had 19 members and approximately £1.67m invested.