ARENA TELEVISION SUSPECTED FRAUD
Arena Television: Fresh air financing
Arena Television was one of the biggest UK outdoor broadcasting firms, before its directors fled pursued for a suspected multi-million, asset-backed lending fraud. Words: Yves Le Marquand
Up and away – but where’s the money? Arena Aviation had a fleet of six helicopters (one cannibalised) when it collapsed, all of which have been repossessed by the lender.
Aside from the aircraft, about £10m has been recovered in asset auctions of broadcast equipment by Hickman Shearer.
THERE IS PLENTY of fresh air up in a broadcasting helicopter and plenty blown by the downdraft too. But what no one noticed until November 2021 was the fresh air-backed assets financed to outdoor broadcaster, Arena Television and its affiliates.
Although the criminal investigation by the UK’s Serious Fraud Office remains underway, the incident has become the biggest suspected asset-backed lending fraud in UK history – amounting to around £285m ($316.53m).
Majority owner and director, Richard Yeowart, aged 54, and director, Robert Hopkinson, aged 41, with an unspecified number of partners are alleged to have altered and invented serial numbers for various assets the company financed. Assets such as cameras, broadcast trucks, helicopters and business aircraft – borrowed from 55 lenders including: NatWest, Virgin Money UK, Close Brothers Leasing and Shawbrook. Of those 55 financiers, 46 owed a total of £182m ($202.14m), “do not have recourse to any assets”, according to Kroll, the firm appointed to administrate and report following the fraud’s discovery.
The two are thought to have fled arrest in the UK. Whilst Yeowart’s whereabouts remain unknown, Hopkinson has reportedly been located by French authorities in the south of the country. In June, Hopkinson and Yeowart were made bankrupt after failing to respond to a High Court judgment ordering the repayment of £100m ($111.06m).
In essence the pair are believed to have run a Ponzi scheme by funding a large amount of equipment and providing serial numbers and invoices to financiers. Lenders and lessors would think they were taking title of those assets – known as ‘title by way of direct invoice’. This meant the invoice would be made out from an equipment supplier to Arena, but instead of transferring title to Arena, it would be given to the financier. The finance company would then lease, via hire purchase, the asset back to Arena.
To do this, Yeowart and Hopinkson used a company called Sentinel Broadcast. Arena would apply for the financing and Sentinel would supposedly ‘source’ the assets from the manufacturer before supplying them to Arena and transferring title to the financier. It is possible that the suspected fraud had been ongoing for nearly a decade. In 2012, Yeowart set up a company registered in Hong Kong, Sports Online Limited, that court filings allege was used for the scheme.
When the plug was pulled in November 2021, it was without warning. Arena had broadcasting trucks and engineers deployed across the UK – including to a World Cup qualification game between England and Albania at Wembley. The company then went into administration when Close Brothers Leasing discovered Yeowart and Hopkinson had ceased trading. A staff member at Redhill Aerodrome, Surrey, UK where the firm’s aerospace division, Arena Aviation, was based, tells CJI it was a “huge shock”, “especially for the employees”.
However, backstage, events at Arena had reached a critical point the week before when valuation firm Hickman Shearer, whilst completing asset verification and valuation on cameras and lenses for a group of Arena’s creditors, found a serial number that didn’t exist.
According to the Kroll report, while attempting to verify a serial number with the equipment manufacturer, Hickman Shearer was advised that the serial number did not exist. It is possible the serial number would not have existed for up to four or five years as the asset would not have been scheduled to be manufactured until then. “This caused [Hickman Shearer] to query the concern with the lender. The directors appear to have taken the decision to cease trading shortly thereafter.”
Kroll also cited factors like the “abscondment of the directors”, “abrupt closure of the business”, “discovery of materially significant liabilities” and the “amount of misinformation apparently provided by the directors to certain creditors”. All suggest a large-scale fraud with the possible collusion of a third party.
The more obligations that Arena would have under the finance agreements (for non-existent assets), the more it would have to pay to service those obligations. To do this Yeowart and Hopkinson had to allegedly create and sell more fake assets to get the cash to service the debt. A slippery slope, which steepened in trajectory like any Ponzi scheme. Next came the frenzy as various lenders competed against each other trying to find assets to which their debt relates.
There are three types of assets in this case: Genuine assets which are funded by a single financier, double-funded assets which are sold to more than one financier (less common in this case) and fresh air assets where the financier is funding just that – fresh air. The latter is uncommon in asset-backed fraud, but it is the most common in this case.
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It's all in the asset
So, how did Yeowart and Hopkinson persuade creditors to fund fresh air for so long? The answer lies in the asset.
Sometimes financiers will send asset management teams to go and physically inspect the assets funded or proposed to be funded, but equipment such as outside broadcasting and camera equipment is unlikely to be always on site and easily available to inspect.
Alan Cunningham, partner, DLA Piper tells CJI: “It’s an outside broadcasting business so the assets could be all over the place. But even if the financier can inspect the assets, if all the customer has done is to attach a sticker which says ‘This asset is owned by X’ and that sticker contains a fake serial number which matches a fake invoice, the inspector may well take that at face value, confirm that he or she has seen the physical equipment and the inspection ‘condition’ required by the financier is then satisfied.”
On the other hand, aviation creditors, Bank of America (BoA) and Lombard, recovered each of their assets within days. BoA had two financed business jets, a Bombardier Challenger 300 (registration: G-XATV) and a Citation XLS (registration: G-XLTV) for Arena whilst Lombard had five helicopters. It is worth noting these assets had been financed correctly and, whilst not common, repossessions are part of the job for financiers, so the recovery of the aircraft was fairly “routine”. BoA repatriated the aircraft to the US and moved them on. Lombard has sold on all-but-one of the five helicopters (with that sale to be completed shortly). CJI located one helicopter (registration: G-TVHD), formerly used for Arena’s aerial broadcasting, now operating aerial tours for a company based in Shoreham, on the Sussex coast.
“There’s really two reasons why this type of fraud doesn’t happen in aviation,” says Cunningham. “First of all, just like land and ships, aircraft have a mandatory asset register maintained by the national aviation authority. Each aircraft is registered on the basis of its manufacturer’s serial number and then given a registration mark on top. So, you can see which airframe, or even aircraft engines, are registered with the national aviation authority just simply by virtue of the company which owns or operates the aircraft registering it in that country.”
“It’s an outside broadcasting business, so the assets could be all over the place”
Alan Cunningham, partner, DLA Piper
Aircraft assets – airframes and engines – all have their own serial numbers. Those serial numbers are usually registered with the national authority and in many cases now with the International Registry (IR) in Dublin as well. So, any prospective buyer, financier, mortgagee or lessor can do their due diligence to identify that particular asset. You can also usually find out who is the legal owner or mortgagee of that asset, as most aviation authorities will also maintain a register of aircraft mortgages and, for most larger aircraft, those mortgages will be registered at the IR. Furthermore, lessors and mortgagees of larger aircraft will often require the owner or operator to affix “fire proof plates” in the cockpit and on each engine cowling stating the owner (lessor) and mortgagee of the aircraft which puts on notice any person inspecting the aircraft.
On top of that, when somebody buys or finances an aircraft, they will usually investigate the owner’s title in that aircraft. This can be done through historic bills of sale that show a chain of title from the manufacturer to the current owner, according to Cunningham. “Most financiers would also undertake a physical inspection of the aircraft in which they would confirm its serial number and the serial number of each engine and (if applicable) the APU [auxillary power unit]. So, the financier can verify that the owner has physical possession of the assets and the serial numbers of those assets match the title documents and the registration documents."
“Recovering the value of assets in as effective and timely a manner as possible on behalf of creditors is vital”
Tim Chapman, MD, Hickman Shearer
Unlike a camera perhaps where you can just put a sticker on it, you can’t really fake a serial number of an airframe.
“In addition to the details of aircraft and engines in title documents, on file at the aviation authority and at the IR, you’ve got all the logbooks and technical records that go with the aircraft which would be reviewed in any inspection too. Those logbooks will all cross refer to the relevant airframe, engine and APU serial numbers,” says Cunningham.
Also, the limited numbers of aircraft production in comparison to camera equipment means it would almost be common knowledge between inspectors that a particular serial number does not exist because the OEM has not produced that many.
“It is because of all those factors it is very difficult for somebody to do in aviation that which Arena’s directors did in terms of outdoor broadcast equipment, because it’s almost impossible to fake the existence of airframes and engines,” Cunningham says.
Aircraft held by Arena were either owned by the financier and leased in, meaning the financier is essentially repossessing their own aircraft, or the aircraft are subject to aircraft mortgages which are fixed securities that will rank ahead of the other creditors. This means all the aircraft financiers were fully secured on those aircraft.
The reason why the other lenders and funders to Arena are not being paid is because they’re secured on fresh air. “Most of the debt provided to Arena will be secured on nothing, because the assets the lessors and lenders thought they were funding and which would provide security under their lease products don’t exist,” says Cunningham. “It is testament to the way aircraft are used, registered, operated, maintained and regulated that it is almost impossible to sell three of the same serial number on a double or triple-funding basis and you cannot sell or obtain financing on serial numbers that don’t exist.”
Arena Television broadcasted live sports events including this Champions League game at Wembley, London featuring north London football club, Tottenham Hotspur.
What next?
Aside from the aircraft, about £10m ($11.07m) has been recovered in asset auctions held by Hickman Shearer – the company appointed to organise the sale of Arena’s assets. The first sale included more than 3,000 lots, from cameras and hundreds of miles of cabling to outside broadcasting trucks with more than 850 bidders from over 50 countries.
Tim Chapman, MD, Hickman Shearer, says: “Recovering the value of assets in as effective and timely a manner as possible on behalf of creditors is a vital aspect of any administration process like this.”
Could checks on asset lending become more stringent as a result of the events at Arena? There is already talk of establishing a register for all financed assets. But primarily in respect of assets being double funded, it is very rare for this many assets to not exist in the first place. In any case, it would be a lengthy period before anything comes to fruition. Operational headaches like making it international and how small or inexpensive an asset should be registered require working through.
Away from aircraft and ships the HPI Register has proved to be successful in providing funders a vehicle history check, says Cunningham. But that’s because vehicles have a unique VIN (vehicle identification number) and are registered.
“For other movable assets, especially those which tend not to have particular serial numbers, a register of financed assets is really quite difficult to establish as it is not possible to distinguish one asset from another of the same make and model without those assets having their own unique serial number. And even with serial numbers, an asset register would not protect prospective funders if those serial numbers did not exist unless each funder was willing to verify the serial numbers with the manufacturer or supplier. You’ve also got to have the buy-in of the entire industry to register financed assets,” he says.
Whilst an all-asset register for financed assets is unlikely, Cunningham thinks funders will be performing more due diligence on operations and cashflows and more thorough inspections on assets. “But no matter what happens next fraudsters will come up with a new plan to defraud lenders. However, better due diligence, better inspections, a better understanding of how companies work and better liaison between OEMs, suppliers and funders will make a repeat of the Arena fraud much more difficult.”
In August, 2022 two further individuals linked to the fraud were sued by Kroll for £285m over claims they were involved with Arena’s directors. Nicholas Cousins, who is presumed to have held a senior finance role at Arena, and Paul Froom, of Sentinel Broadcast, have been accused of providing “dishonest assistance” to Yeowart and Hopkinson.
Alan Cunningham, partner, DLA Piper.
A High Court claim shows Froom is wanted in connection with £1.1m ($1.22m) in invoices paid to Sentinel, a sum that was reportedly “misapplied and/or misappropriated” by Arena’s directors. Administrators also claim Cousins received £210,000 ($232,312) in “corrupt gifts” for his role in the fraud.
Until the investigation is complete, the true nature of events surrounding the events at Arena will not be public. They might never be, but it is unlikely financiers will ever back this many assets on fresh air for a company for quite some time.
Arena staff members were unable to discuss events whilst the Serious Fraud Office investigation and any subsequent court case remain incomplete.
Bank of America and Lombard both declined to comment.
SEMAPHORE INTEL is a new service from Specialist Insight – the publisher of Corporate Jet Investor Quarterly. The service uses Open-Source Intelligence (OSINTEL) to help aviation business to quickly background check customers, suppliers and counterparties for possible threats and highlights the risks potential business partners may present.
High-value assets attract fraudsters, criminals and organised crime. Once they have gained knowledge they also tend to stay in the industry and may cause businesses real harm. They can waste your time and damage your reputation. Semaphore Intel aims to help you avoid them by using our unique negative/adverse news database. You can quickly and confidentially check people and companies before starting to work with them or use it to monitor existing customers. Our analysts use automated artificial intelligence screening to monitor conventional print and online news all year round. For more information, contact [email protected].
SEMAPHORE INTEL is a new service from Specialist Insight – the publisher of Corporate Jet Investor Quarterly. The service uses Open-Source Intelligence (OSINTEL) to help aviation business to quickly background check customers, suppliers and counterparties for possible threats and highlights the risks potential business partners may present.
High-value assets attract fraudsters, criminals and organised crime. Once they have gained knowledge they also tend to stay in the industry and may cause businesses real harm. They can waste your time and damage your reputation. Semaphore Intel aims to help you avoid them by using our unique negative/adverse news database. You can quickly and confidentially check people and companies before starting to work with them or use it to monitor existing customers. Our analysts use automated artificial intelligence screening to monitor conventional print and online news all year round. For more information, contact [email protected].
