Tim Haywood had known Daniel Sheard for decades. The two worked together fresh out of university, at the London office of ANZ, the Australian bank. It was the late 1980s, and the City was booming after Margaret Thatcher’s government delivered the ‘Big Bang’ – the wave of deregulation that transformed London into a modern financial capital.
At ANZ, Sheard worked on the fixed income team that invests in government and corporate bonds and similar financial instruments. Haywood was in equities. They occasionally swapped information about interest rates.
After ANZ, each went his own separate way for a few years. Sheard stayed in London. In the early 1990s, his career stumbled when he was censured by regulators for mispricing some investments. It was an embarrassing public chastening for Sheard early in his career and left a blemish on his reputation. Haywood left London and began to specialize in fixed income too. His work took him to Hong Kong before, eventually, he returned to the City to a role at the Swiss bank Julius Baer.
In 2006, Haywood was running a fund and looking for a co-manager. He met Sheard for a coffee at the Royal Exchange, a grand, sixteenth-century building next door to the Bank of England. Its central location and busy acoustics make the cafe there a classic venue for City types to meet and surreptitiously discuss job moves. Haywood’s fund was doing well and the role was interesting. It would be fun to work with an old colleague again. Sheard agreed to join.
The two were a good match. Haywood was extremely confident and an intuitive investor. Sheard was more reticent and enjoyed the grunt work of digging through corporate filings and other minutiae. But Haywood’s hunt for stellar returns also sometimes took him into areas that left Sheard feeling uncomfortable. Sometimes Haywood would take equity stakes in start-up businesses, a much riskier type of investment than the two fund managers typically aimed for. Often, he’d skirt normal documentation or credit analysis.
BY LATE 2015, the Absolute Return Bond Fund (ARBF) that Haywood and Sheard ran together was the faded jewel in the crown at Global Asset Management. Performance had dropped off in recent years, but it was still the economic driver of GAM’s entire business.
That’s when Haywood began investing with Greensill.
The normal investment procedure was that GAM’s staff would look at an investment, do some research, and then contact a broker selling the asset. Once they’d decided to buy, two GAM managers had to sign off on the deal – the so-called ‘Four Eyes Principle’ is a common internal risk control process in investment management. At GAM the process was meant to be applied to every deal to ensure all deals were free of conflicts; everything was checked twice; no one could go rogue.
But the process for Greensill assets was different. Greensill had made the case that the existing GAM process was too slow and cumbersome to apply to supply chain finance, where settling invoices quickly was key. For SCF investments, speed was of the essence, and all the loans were short term. A new system was set up, exclusively for Greensill, so that Greensill would submit securities via its broker, Morgan Stanley. These would go straight to GAM, where only one sign-off would be required.
In emails to compliance and other staff in December 2015, Sheard challenged this approach. He was uncomfortable with circumventing normal process and pointed out that GAM ‘has not undertaken ANY credit research or other Due Diligence on ANY of the Relevant Obligors.’ (Obligors is essentially another name for the borrowers, and we will come to them in detail later.)
Sheard’s correspondence sparked a series of replies and responses. But eventually, the discussion went quiet and everyone moved along. The numbers involved were small. The potential problems hypothetical. There was plenty of other work to be done and no one wanted to get sidetracked by the process around a few million dollars in a multibillion-dollar fund.
Lex also did his bit to allay any concerns. He came to GAM’s office to meet with Haywood and some of the team. Seven or eight GAM staffers sat in a dingy second-floor meeting room while Lex ran through the features of his SCF investments. They were safe. They were liquid. They were short term. They were backed by real invoices for real transactions. Lex projected he’d bring in $10 billion in assets, which would generate tidy, reliable fees for the GAM team. Neither he nor Haywood mentioned that they were also working on a series of other funky loans, some to Sanjeev Gupta, others to Greensill itself, and yet more to other problematic business interests of Greensill’s.
The pace of Haywood’s Greensill investments continued to pick up. And so did Sheard’s discomfort. Some of the investments appeared to have nothing to do with SCF, and Haywood’s behaviour had become odd. He was out of the office a lot, often with Lex or Sanjeev Gupta. His colleagues at GAM joked about Tim’s ‘second job’ working for Lex.
The Greensill deals were rapidly increasing in size. There were hundreds of millions of pounds loaned to Gupta for acquisitions he was making in Scotland. These were unusual in size and, because they were not very liquid, they couldn’t easily be sold to someone else if GAM wanted to exit the investments. The Laufer deals were growing fast too. Haywood was also investing in aircraft lease payments that Greensill had put to him. In every case, Greensill was making significant fees – often millions of pounds per deal.
In the summer, Haywood began investing in more Greensill securities tied to Gupta, this time backed by biofuel generators. The numbers were huge – £250 million at a time. In August, Sheard and a couple of other senior managers asked Haywood for a meeting in GAM’s St James’s office. They told Haywood that the investments didn’t smell right. They wanted him to get out of it. Haywood was annoyed and left the room. Shortly afterwards, Lex himself showed up in the GAM office and convened another meeting. He argued vehemently that the deal was a good one, GAM was getting well paid, there was no risk. The GAM sceptics were not convinced. After Lex left, they told Haywood again that they couldn’t support the investment. Haywood made it clear he didn’t care about their opinion.
In early August 2017, Sheard told Haywood that he couldn’t continue. He would resign as a co-manager of the ARBF fund, though he’d stay at GAM. He wanted nothing to do with anything related to Greensill. Sheard sent an email to Haywood, GAM’s CEO Alex Friedman and the CFO Richard McNamara. Haywood was shocked. He and Sheard had worked together for years. They’d known each other for decades. Sheard had been making noise about the Greensill investments for the past two years, but Haywood appeared to have been blindsided by his decision.
Over the next few weeks, there were a series of discussions at the top level of GAM about exactly what Sheard was complaining about. It was a mix of process (lack of due diligence, lack of analysis, lack of documentation), worries about the nature of the Greensill investments, and concerns that some of the Greensill securities just didn’t fit with the rules of the ARBF fund. It was serious stuff, no doubt. But was it true? Or was it all just some kind of falling out between Sheard and Haywood? What was Sheard’s motivation?
Haywood continued as though nothing had changed. Instead of selling down his Greensill investments, he held on to them. Haywood was not acting as if he’d just been outed in a major financial scandal.
By October, GAM’s top management had enough reasons, based on Sheard’s allegations, to make a move. They placed some restrictions on Haywood. He couldn’t invest in new Greensill assets without a signature from Sheard, Friedman and another senior executive. But it hardly seemed to spook him at all. Two weeks after that rule was put in place, he renewed the Laufer investments, the complex securities that were effectively supporting Greensill itself.
In November, Sheard was supposed to fly with Haywood to Australia to market the ARBF and other funds to investors there. Although he’d resigned as co-manager, he still had a role in the funds. But Sheard just couldn’t bring himself to make the trip. He couldn’t in good conscience persuade investors to put their money into the funds when Haywood was still investing with Greensill and Gupta. Sheard told the firm he wouldn’t be going. The implication was clear: we shouldn’t be marketing these funds at all until we’ve cleaned them up. Remarkably, Haywood went anyway.
Around this time, a different narrative was taking hold. The office gossip was that Sheard was a troublemaker, trying to engineer his exit from the firm and to force a big payout. Even close colleagues questioned why he was creating such a fuss. Everyone knew he was stirring up trouble. If he had been so unhappy, why wait for so long, letting Haywood build such a big position with Greensill before kicking off? The answer to that, of course, was that Sheard had been raising his concerns all along, but no one had been listening. And besides, the scale of the Greensill investments had started off small and only grown incrementally. Haywood’s Greensill investments were like a slowly boiling frog.
He spent most of the next few months working from home to avoid the antagonism. But in February, Sheard was in the office when a colleague dropped a couple of pages on his desk. They were critical documents that left Sheard dumbfounded. Haywood, working from home, appeared to have accidentally sent them to the office printer. The documents showed that he was planning to enter a complex ‘put option’ deal with Lex Greensill. If he went ahead, the deal would give Greensill the right to sell to GAM hundreds of millions of dollars of bonds tied to defaulted loans. In return, GAM was going to get a paltry sum of a few thousand pounds for taking on this risk.
It was an incredible discovery. Tim Haywood had been told not to do any more business with Greensill, yet this was evidence he was planning to do another massive deal. But it was worse than that. Many of the ARBF investors simply weren’t allowed to invest in private option trades like this one, or buy defaulted assets, which this deal could force them to do. The deal made no economic sense – there was just not enough reward for the risk GAM’s investors were taking on.
For Sheard, it was – another – final straw. With his lawyers, he went to the Financial Conduct Authority (FCA), bringing all the evidence he’d gathered over the past couple of years.
By involving the regulator, GAM would have to take his allegations seriously, Sheard and his lawyer reasoned. Something more substantial would surely have to happen. It did, but not necessarily in the way he might have expected. Sheard was questioned by the FCA’s enforcement division, and by GAM’s external counsel, which had been hired to investigate the allegations against Haywood. Sheard felt as though he himself was on trial. It wasn’t clear that GAM’s external law firm believed anything he was saying. Colleagues openly questioned his motivation too. His career and friendships were ruined.
A few months later, as the crisis blew through GAM’s share price and made the firm front-page news, Sheard left the firm for ever.
WHISTLE-BLOWERS ARE a strange breed. I’ve worked with several of them. Sometimes they’re true outsiders, whose otherness is what allows them to speak up. Sometimes they are so socially out of tune that they are oblivious to what will happen once they file a complaint. For the most part, blowing the whistle is a lonely, frustrating experience. But many whistle-blowers imagine they will be hailed as heroes for saving the company and are utterly disappointed when it doesn’t work out that way. Sheard was not this kind of whistle-blower. He was acutely aware that if he blew the whistle on a star employee, the consequences for him and the firm could be brutal. Friends and colleagues would turn on him. Investors would pull their money out of the funds he ran with Haywood. GAM itself would almost certainly come under significant financial pressure. It might even go bust altogether. But he reasoned that – despite the fact it might wreak Armageddon on the firm and on his career – it was better than the alternative.
In the summer of 2016, a foreign exchange trader from HSBC had been arrested on fraud charges in the US while trying to board a transatlantic flight. A year later, the trader was found guilty and eventually given a prison sentence by a US court. The story weighed on Sheard. Some of the investors in the GAM funds were US pension funds, and he worried about the potential for US regulators to take an interest in what Haywood was up to with Greensill. The memory of his own earlier punishment for wrongdoing also lingered.
A little later, he was on a work trip to Frankfurt. Sitting on a bench near the city’s opera house, Sheard took a call from a colleague. You must blow the whistle, the colleague told him. The colleague had been talking to a legal expert. If Sheard didn’t blow the whistle, he could find himself in trouble for not speaking up.
Later, a couple of blogs that peddle finance scuttlebutt accused Sheard of being the ‘villain’ at GAM. ‘Daniel Sheard is a short, driven individual who is highly competitive, a compulsive obsessive cyclist who likes to be around combative people’, one of the blogs sniped. The blog’s author alleged his motivation was jealousy over Haywood’s bonuses and that Sheard had paid journalists to tell his version of events. None of this was sourced in a credible way. It looked like a hit-job, meant to undermine Sheard’s version of events. I also heard later that Sheard was a special focus of Lex’s ire. Lex talked about having him followed to see if he was leaking stories.
The decision to blow the whistle was a costly one, in just about every way. It was the toughest decision. It took a mental and financial toll. His reputation was dragged through the internet and more than one business news publication. He lost his job and incurred massive legal costs. In years to come, Sheard told people he wasn’t sure if he had done the right thing, if all the trouble that followed was worth it. In the end, he had no choice.
After he was forced out of GAM, Sheard’s career was essentially on permanent hold. He went into a kind of domestic retirement at his home in the north of England, where he grew cider apples and took days-long cycling trips. Meanwhile, his legal costs ran higher and higher. He was kept in limbo by the UK’s finance regulators, who failed for years to make any kind of move or announcement about Haywood or Greensill. Sheard himself documented everything related to Greensill. He maintained file upon file related to Lex’s business, well beyond the GAM affair. He was bound by confidentiality agreements that meant he couldn’t speak to journalists or anyone else about what he knew. But he also had a presence on social media. For those of us who knew it, Sheard’s social media posts became a fascinating source of insight into some of the key turning points of the next couple of years.