In December 2004, in a case brought by the FSA, the High Court ruled that Mr John Martin and Adrian Sam & Co ("ASC"), the former London-based law firm at which Mr Martin was a partner, were involved in an illegal overseas investment firm's (or boiler room) activities in the UK and that they had to repay money to investors. Mr Martin and ASC appealed against the order that they repay the money to investors; they did not challenge the finding that they were knowingly concerned.
Background
Between August 2000 and October 2001 Mr Steven Wilkinson, trading as Apex Equities and then as Great British Investors, operated a boiler room in Spain. Mr Wilkinson and the boiler room operated illegally by carrying on investment business in the UK without authorisation; making misleading statements about the nature and the risks of the investments it recommended to investors and issuing unapproved investment advertisements to UK investors.
The boiler room operated by making unsolicited telephone calls to UK residents during which Mr Wilkinson and his agents recommended they purchase of certain
shares which were offered at inflated prices and advised that (a) the shares were going to substantially increase in price; and (b) the boiler room would only receive payment if the shares they recommended increased in value. Investors paid the purchase money, of more than £825,000, directly to ASC's client account. This process was designed to imply to investors that their money was safe in the hands of UK solicitors.
Mr Martin, on behalf of Mr Wilkinson, used the investors' money to acquire the shares for the investors at a price of between £2 and £5 less than the investor had agreed to pay for the shares. Mr Martin also arranged for the delivery of share certificates to the investors. ASC charged Mr Wilkinson fees of approximately £60,500 for its work. The High Court found that Mr Martin knew Mr Wilkinson was acting without authorisation.
Payment Order
At the time the boiler room ceased trading investors fell into two categories; those who received a share certificate from Mr Martin after paying him money and those who paid their money but received no share certificate. Following earlier court proceedings, ASC refunded from funds held in its client account 67p in the pound to those investors who had not received a share certificate. In December 2004 in the High Court Her Honour Judge Alton ordered that those investors with no certificates should receive the balance of their investment back in full from Mr Martin and ASC and that investors in possession of a share certificate should receive the difference between what they paid per share and what it was actually worth at the time ASC acquired the shares
Margaret Cole, Director of Enforcement at the FSA said:
"Mr Martin and his firm were no more than a seemingly respectable front for a boiler room and these investors believed that by paying money to a UK solicitor, their investment was safe.
"Investors who do not look into the true nature of the deal they are getting into can suffer substantial harm, as can professionals who act as fronts for boiler room operations. Although the FSA can seek to recover victims' losses through the courts, we can rarely get investors all their money back."
As the boiler room was not authorised by the FSA, investors do not have access to the Financial Services Ombudsman or the Financial Services Compensation Scheme.
The FSA regularly warns consumers on the dangers of boiler rooms. For further information visit www.fsa.gov.uk/consumer.
Further Detail
- Her Honour Judge Alton stated in the High Court in December 2004 "the reality is that the involvement of professional people such as accountants, bankers or established solicitors gives a veneer of propriety and respectability to an investment scheme which might otherwise not attract business which it does or which might otherwise be regarded as suspect or risky".
- Not all investors are included in the payment order as some investors failed to respond to the FSA's enquiries about their investment and other investors were companies rather than individual consumers.
- The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; securing the appropriate degree of protection for consumers; and fighting financial crime.
- The FSA aims to promote efficient, orderly and fair markets, help retail consumers achieve a fair deal and improve its business capability and effectiveness
