The Securities and Futures Commission (SFC) has revoked the licence of Mr John David Lawrence, a representative of PFC International Company Limited (PFC), and fined him $900,000 for failings relating to his sale of the EEA Life Settlements Fund (Fund) to clients (Notes 1, 2 & 3).
An SFC investigation revealed that from March 2009 to October 2011, Lawrence, who was the chairman and a responsible officer of PFC at the material time, sold the Fund to 31 client accounts involving transaction amount of approximately $28 million, although PFC had classified the Fund as “execution only” and should not be promoted to clients (Note 4).
A significant number of clients who bought the Fund through Lawrence were elderly clients despite the liquidity risk of the Fund and the risk of deferral of redemption requests associated with the Fund (Note 5).
The SFC found that Lawrence had failed:
- to ensure the suitability of the Fund to his clients;
- to ensure that the risks associated with the Fund were fully disclosed to his clients;
- to document the investment advice given to his clients in respect of the Fund, and the rationale underlying the advice and to provide clients with a copy of the written advice; and
- as a member of PFC’s senior management, to set appropriate standards for his staff to follow to ensure the suitability of products recommended to clients.
Lawrence’s misconduct calls into question his fitness and properness to remain a licensed person. He blatantly disregarded the firm’s due diligence result and ignored his fundamental duty to ensure suitability of his investment recommendation and to present balanced views regarding the Fund.
Moreover, as the then Chairman of PFC and a member of senior management, Lawrence failed to set appropriate standards for his staff to follow and failed to ensure that PFC’s investment advisory functions were properly directed and managed to serve the best interests of his clients.
In deciding on the penalty, the SFC took into account his financial position, his cooperation and his otherwise clean disciplinary record.
Notes:
- Lawrence is licensed under the Securities and Futures Ordinance to carry on Type 1 (dealing in securities), Type 4 (advising on securities) and Type 9 (asset management) regulated activities and is accredited to PFC International Company Limited.
- The Fund is a traded life policy investment, or a viatical settlement, which acquired and traded in outstanding life insurance policies issued in the United States. It is not a product authorized by the SFC.
- On 28 November 2011, the UK Financial Services Authority issued a guidance consultation on traded life policy investments, indicating its intention to consult on a ban of all marketing of such products to retail investors as they were complex and high risk, and generally unlikely to be suitable for retail investors. On 30 November 2011, the Board of Directors of the Fund decided to suspend dealings in the Fund. The suspension was lifted on 1 January 2014 after a restructuring of the Fund came into effect.
- Under PFC’s compliance manual, “execution only” funds can only be purchased according to clients’ requests. Account managers are not allowed to promote or give advice to clients on these funds. Lawrence was the only account manager of PFC who had sold the Fund to clients.
- Lawrence sold the Fund to 12 client accounts which involved elderly clients who were 65 years old or above. A few of them were over 85.
A copy of the Statement of Disciplinary Action is available on the SFC website