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More Civil Actions by the Regulators against UCISs - by Siobhain Egan

carbon creditsWe have written in the past about the multi-agency approach taken by the regulators to the issues surrounding Unregulated Collective Investment Schemes (UCISs) and here we are examining two more recent examples of such an approach.

The Insolvency Service (IS) has succeeded in High Court proceedings to ‘wind up’ a large group of companies involved in the carbon credit industry.

According to New Model Advisor (23 May 2014), Ecosynergy Group Ltd was a wholesale company selling Voluntary Emission Reductions carbon credits (VCRs) to other companies who then marketed the credits to investors.

The IS alleged that investors paid £19 million for the carbon credits which cost the company some £2.3 million.

It was believed by the IS that it was at the epicentre of a group of thirteen companies that sold the carbon credits. This was a somewhat unusual situation; generally the ‘seller’ companies are quite distinct and operate independently of the VCR platform company. In this case the IS described the ‘sellers’ as associates and this particular business model as pioneering.

It was alleged that the carbon credits were sold at inflated prices, and that false claims were made about expected returns somewhere in the region of 60%. The firms were apparently earning turnover of £5 million PCM.

The IS believed that many of the investors were vulnerable who were apparently ‘cold called’ by the seller companies.

The IS also successfully targeted a wine investment company in a so called ‘recovery fraud’.

Capital Bordeaux Investments (Company A) and Capital Bordeaux Investment Corporate (Company B) allegedly focused upon investors who had lost money in other wine investment schemes. The ‘victim’ investors then invested in Company A, and Company B received funds from the investors in order to recover monies from the original wine investment companies, allegedly a ‘recovery fraud’, even though the original companies were already in liquidation.

Common UCISs usually involve shares, land, overseas property, bio-fuels, carbon credits, wine, classic cars, forestry, storage units, and film schemes, amongst others.

The FCA (Financial Conduct Authority) also use other approaches when dealing with UCISs, such as heavily publicised warnings both to investors and the companies involved that they regard as ‘suspect’, and handing down large fines to those companies (and individuals) involved.

UCISs have been a high priority issue for the FCA for the last three years or so, and there isn't any sign that their focus is going to abate any time soon.

Michael Abrego, writing in New Model Adviser (7 May 2014), points out that the FCA have done a great deal to stamp on UCISs re-promotion of these schemes and unsuitable advice.

The RDR (Retail Distribution Review) banned the very attractive and high levels of upfront commissions and have insisted on higher professional standards. There has also been the all important ban upon selling UCISs to non-sophisticated investors since 1 January 2014.

There have been many highly publicised warnings to SIPP providers about UCISs and other non-mainstream investments. The FCA has required SIPP providers to alter the regulation permissions and they also intend to increase the providers’ capital adequacy requirements.

The FCA’s third thematic review into the SIPP market began in October 2013, and a number of SIPP providers have been strongly advised to stop accepting UCISs, unlisted shares, and commercial property syndicates until they can show stronger systems and controls.

Many in the financial services sector believe that all the responsibility for UCISs will fall to SIPP providers.

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Progress on EU Regulation of Financial Markets

Comprehensive rules to govern financial markets were agreed informally by negotiators for the European Parliament and the Council of Ministers earlier this week.

The rules are designed to close the loopholes in the existing legislation, ensuring that financial markets are safer as well as more efficient, investors are better protected, speculative commodity trading is curbed and high-frequency trading is regulated.

They will apply to investment firms, market operators and services providing post-trade transparency information in the EU. They are set out in two pieces of legislation: a directly applicable Regulation dealing with transparency and access to trading venues and a Directive governing authorisation and organisation of trading venues and investor protection.

According to the European Parliament, the new rules would provide that:

  • all systems enabling market players to buy and sell financial instruments would have to operate as Regulated Markets (RMs) like stock exchanges, Multilateral Trading Facilities (MTFs) such as NYSE EURONEXT or Organised Trading Facilities (OTFs) designed to make sure that all trading venues are captured by the Market in Financial Instruments Directive (MiFID). Trading on OTFs would be restricted to non-equities, such as interests in bonds, structured finance products, emission allowances or derivatives.
  • the trading obligations would ensure that investment firms do their trades in shares on organised trading venues such as RMs or MTFs. Transactions in derivatives subject to this obligation would have to be concluded on RMs, MTFs, or OTFs.
  • firms providing investment services would have a duty to act in clients’ best interests and this would also include designing investment products for specified groups of clients according to their needs, withdrawing “toxic” products from trading and ensuring that any marketing information is clearly identifiable as such and not misleading.

For the first time it would be provided that the competent authorities would be empowered to limit the size of a net position that a person may hold in commodity derivatives, given their potential impact on food and energy prices. Under the new rules, positions in commodity derivatives (traded on trading venues and over the counter), would be limited, to support orderly pricing and prevent market distorting positions and market abuse.

The proposals also include, for the first time at EU level, rules on algorithmic trading in financial instruments. 

The details of the deal will be now fine-tuned in technical meetings.

Contact Lewis Nedas’ Criminal Lawyers in London

If you, or your organisation, would be affected by these new rules and you require specialist legal advice, please contact our solicitors Jeffrey Lewis or Siobhain Egan on 020 7387 2032 or complete our online enquiry form here.

This blog post is intended as a news item only - no connection between Lewis Nedas and the parties concerned is intended or implied.

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Spam Text Fine for Pay Day Loans Company

In an interesting regulatory action by the Information Commissioner's Office (ICO) at the end of last year, pay day loans company First Financial was fined £175,000 for sending millions of unlawful spam texts.

This breached the Privacy and Electronic Communications Regulations (PECR), which govern electronic marketing, and require organisations  to obtain an individual’s consent before sending marketing messages by text. In this case, says the ICO, 4,031 complaints were made against messages sent from numbers which the ICO found to belong to First Financial.

The spam texts were sent using un-registered SIM cards, which, according to the ICO, is a common method used to avoid detection. However the content of the message was similar on each occasion and referred recipients to a website belonging to, which is a trading name used by First Financial.

The imposition of the fine follows the prosecution of the company’s former sole director, Hamed Shabani, in October 2013. Mr Shabani was found to have breached the requirements of the Data Protection Act in failing to notify the ICO that First Financial was processing personal information. He was fined £1,180.66.

The most recent fine also comes on top of separate regulatory action by the Advertising Standards Authority.

The ICO has helpfully published detailed guidance for direct marketers explaining their legal requirements under the Data Protection Act and Privacy and Electronic Communications Regulations. The guidance covers the circumstances in which organisations are able to carry out marketing over the phone, by text, by email, by post or by fax.

Contact Lewis Nedas’ Criminal Lawyers in London

If you or your organisation are being investigated by the ICO and you require specialist legal advice, please contact our solicitors Jeffrey Lewis or Siobhain Egan on 020 7387 2032 or complete our online enquiry form here.

This blog post is intended as a news item only - no connection between Lewis Nedas and the parties concerned is intended or implied.

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New Instructions for LNL

  1. Tony Meisels has been instructed in a major cyber-fraud case;
  2. A multi-defendant class A drugs supply conspiracy – Elena Abrahams is dealing;
  3. Siobhain Egan is dealing with an SFO pension SIPP fraud prosecution (Arck) of £63 million. Please click here for newspaper covering from the Financial Times;
  4. An offshore wealth management company is being investigated for money laundering, Siobhain Egan is also dealing;
  5. Jeffrey Lewis has been instructed in FCA pension liberation investigations under Project Bloom;
  6. Jeffrey is also advising a senior banker from a multinational bank on a regulatory/criminal money laundering investigation.
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Suspected Boiler Room Fraud Firm Has Assets Frozen By FCA

New Model Adviser (19/11/2013) reports that the FCA has seized assets of First Capital Wealth limited, which it suspects of boiler room activity. It has also sought an injunction to prevent investment sales activity, and is focusing on a property investment vehicle called Berkeley Brookes, which has in excess of £600,000 of investors' money, and was active between July and November 2013.

This is another example of the new aggressive, pre-emptive approach increasingly taken by the regulators to protect the interests of investors at an early stage.

This is an easier approach for the regulators to take; they only need to prove to the Court on the lower and civil standard of proof, i.e. upon the balance of probabilities, that illegal activity has occurred, i.e. that this firm, unauthorised by the FCA, was arranging and promoting investment in Berkeley Brookes.

The important issue for the FCA is that because of the lack of FCA authorisation, investors' money would not be covered by the Financial Services Compensation Scheme.

If you are facing a similar situation, we have specialist lawyers who deal with the financial regulators and regularly defend civil actions such as these.

Contact us by telephone on 0207 387 2032 or complete our online enquiry form here.

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