Three former directors of Independent Insurance, the collapsed insurer, were accused yesterday of lying to customers and shareholders over the dire financial state of the company as one of the biggest investigations by the Serious Fraud Office went to trial in London.

Michael Bright, 62, the former chief executive, Philip Condon, 58, former managing director, and Dennis Lomas, 56, former finance director, were each charged with two counts of conspiracy to defraud and one of fraudulent trading on the first day of the landmark trial at Southwark Crown Court.

All three men pleaded not guilty.

Andrew Baillie, QC, for the prosecution, told the court: “The prosecution say the defendants told sustained and deliberate lies over a period of months and years to the financial advisers of the company and to their fellow directors.

“These lies were told about two different aspects to the company’s business. What these two areas had in common was that the lies presented the group’s finances in a more favourable light compared to the truth.”

The start of the trial marked the culmination of one of the longest investigations undertaken by the Serious Fraud Office (SFO).

It picked up the case in June 2001 and has yet to calculate the expenses bill involved in bringing it to court.

The SFO expects the trial to last between four and six months. Mr Baillie told the court that the trial would be complex. However, he emphasised that the case was not about whether the three former executives had been responsible for the insurer falling to its knees – the central charge was that they had covered up the problems, he said.

The actions of Mr Bright, Mr Condon and Mr Lomas could have artificially inflated the value of Independent by as much as £250 million, Mr Baillie said.

Independent filed for bankruptcy in 2001 after discovering that it had insufficient reserves to meet incoming claims from policyholders.

It was found that some claims had been recorded improperly and in some cases not at all. Some estimates put the shortfall at as much as £700 million.

The demise of the former darling of the stock market, valued only the previous year at £1 billion, left debts of hundreds of millions of pounds and thousands of individuals and some high street companies with no cover.

The trio are accused of misleading shareholders, creditors and customers about the extent of Independent’s liabilities between January 1997 and June 2001.

The case has reverberated throughout the insurance industry.

The Financial Services Compensation Scheme, run by the Financial Services Authority, paid out more than £350 million in settlement of claims made by customers against Independent’s policies.

The effect on the regulator’s resources meant that it was forced massively to increase the levy that it asked of its customers for several years.

KPMG, Independent’s former auditor, also faces complaints made by the Accountants’ Joint Disciplinary Scheme, a watchdog, over alleged auditing failures at the insurer.

KPMG did not comment specifically yesterday, but has said consistently that it cooperated fully and would be defending itself.

Mr Bright, who declared himself bankrupt and moved to Spain in the wake of the collapse, was charged alongside his colleagues in 2005 but it has taken until now to get the case to court.

The SFO, which has been working on the Independent case with the City of London Police, said that the investigations that it had taken on were by their nature long-lasting.

It assesses prospective cases using a number of criteria, including whether the sums of money involved exceed £1 million and if there is widespread public concern and a need for specialised knowledge, it said.

Founded in 1986, Independent was, at its height, Britain’s fastest-growing insurer.

Fall of Independent

1986 Independent Insurance formed by ten businessmen, including Michael Bright

November 1993 Floated on the stock market with a valuation of almost £100m

January 1997 Month that alleged fraud by former directors began

February 2001 Michael Bright, chief executive, resigns

June 2001 Independent goes into liquidation

June 2001 Serious Fraud Office begins investigation

August 2001 Michael Bright declares himself bankrupt

December 2005 Mr Bright, Mr Lomas and Mr Condon are charged with conspriracy to defraud

June 2007 Trial begins

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