Merrill 'trade' missed for 18 months

MERRILL Lynch said today it did nothing to stop the alleged theft of £26m from its funds because it thought chief energy trader Daniel Gordon was involved in hedging deals.

In an attempt to distance itself from charges that it withheld information when selling energy trading division Global Energy Markets to Allegheny Energy for $489m (£303m) in 2001, the US investment banking giant claims that it was 18 months before it suspected Gordon had stolen the money through a trade with a shell company in the Caribbean.

But critics point out that, even if Merrill thought the trade was part of a hedging contract, the bank's controls were completely inadequate.

'Allegheny has an interest in saying there was an undisclosed material event when they bought the business, and Merrill has an interest in pleading ignorance,' said John Coffee, professor of corporate law at Columbia University.

Meanwhile, in Canada, the Royal Canadian Mounted Police are continuing to investigate Gordon and another man, Michael Ritter, and his securities company Newport Pacific Financial Group.

The Mounties are understood to be focusing more closely on Ritter, who claims to have been the one to have first alerted Merrill to the alleged theft.

Although the subject of an investigation himself, Ritter may be the authorities' best witness, according to Jason Chance, a spokesman for the Alberta provincial justice department.

Even before Merrill became involved, the Mounties were probing Newport Pacific on suspicion of money laundering. His company helped Gordon set up a shell in the Caribbean which allegedly received the transferred stolen money.

Ritter says he became suspicious when Gordon moved most of the money out of the account soon after it arrived. He says Newport then froze the remaining $10.5m and he has not spoken to Gordon since then.

'I believe that Gordon, a former employee of Merrill Lynch in New York City, defrauded the company and its energy trading successor, Allegheny Energy Supply, of $43m,' said Sergeant Joseph Mamela, a member of the Mounties' commercial crime unit in Edmonton, in a sworn statement.

'Gordon and Michael P Ritter, of Edmonton, Alberta, then used the offices of Newport, a company Ritter controlled, to launder that money through bank accounts owned by two offshore shell companies, Ostrich and Falcon, in tax havens.'