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The Financial Services Authority (FSA) has today won an appeal against a firm of solicitors that used its status as an FSA-authorised firm to approve promotional material used by overseas boiler room operations to defraud UK consumers.
The decision, which overturns an original ruling by the Financial Services and Markets Tribunal, relates to Leeds-based solicitors, Fox Hayes. The firm approved 34 financial promotions for five unauthorised, unregulated overseas companies between 2003 and 2004. Using the approved promotional material as the first point of contact, the overseas companies were able to illegally sell shares worth about US $21 million to 670 UK investors.
As well as finding that Fox Hayes broke FSA rules by approving material that allowed boiler room fraudsters to target UK investors, the Court of Appeal also increased the level of penalty imposed by the Tribunal against the solicitors' firm from £146,000 to £954,770. The revised penalty includes a £454,770 commission made by former senior partner at Fox Hayes. The final penalty will be determined by the Tribunal at a later date.
The FSA decided to appeal the Tribunal decisions on points of law, as part of its fight against overseas boiler room fraudsters and to further deter other regulated individuals and companies from assisting them.
In his judgement on Fox Hayes misconduct, Lord Justice Longmore said:
“In my view, the misconduct which this case revealed was serious. There was a failure (on Fox Hayes’s part) to take reasonable steps to ensure that the promotions by the overseas companies were clear and not misleading. There was also serious doubt that the overseas companies would deal with UK investors in an honest and reliable way.”
Margaret Cole, FSA director of enforcement, said:
"This decision supports our view that firms that assist boiler room operators should be brought to task for their role in perpetrating boiler room fraud and share scams. We hope this will send a strong message of deterrence to other firms and individuals that may turn a blind eye to the legitimacy of their clients in exchange for fees or commission
