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The Financial Services Authority (FSA) has fined Hythe Securities Limited (Hythe), a London-based stock broking firm and its senior director, Meenaz Mehta a total of £235,000 – Meenaz Mehta is also banned from holding senior positions in any firm selling penny shares to the public.
Acting as the Chief Executive and holding Controlled Function 10 (Compliance Oversight), Mehta was responsible for the day-to-day running of Hythe. This included its Retail Group, the sales division which specialised in selling small cap or penny shares.
The Retail Group employed poorly trained advisers, paid them largely by
commission, and pressurised them to meet sales targets or face disciplinary
action. An FSA investigation found that customers were exposed to the risk of
receiving unsuitable advice because the firm’s systems and controls were too
weak to manage the risks generated by an aggressive sales culture.
Despite recognising the potential risk to customers, Mehta failed to take
sufficient action to ensure his firm was complying with FSA rules. In the eight
months to September 2007, the Retail Group completed 2,383 sales by telephone,
but the one person responsible for monitoring calls only managed to check 35 of
them.
Mehta’s failure to implement formal reporting procedures meant that he could not identify or control many of the regulatory risks arising from the firm’s business model, particularly those relating to the fair treatment and protection of Retail Group’s customers.
Margaret Cole, FSA Enforcement and Financial Crime director said:
“Mehta’s lack of action and leadership allowed Hythe to place the pursuit of profit above the protection of its customers. This is totally unacceptable.
“Compliance with FSA rules is mandatory, and the buck will stop with senior management if a firm is found to be flouting those rules, whether by design or inaction.”
Hythe was fined £200,000 for inadequate systems and controls. Mehta failed to ensure that Hythe complied with the necessary regulatory requirements. He was fined £35,000 and banned from holding senior positions in firms selling penny shares to the public.
The Retail Group is no longer operating at Hythe, and Hythe is no longer advising retail customers on the purchase of penny shares.
