Regulated Firms in ‘Default’

The following firms were declared in ‘default’ by the FSCS

The following firms have been well documented in the financial press, please click on the firm name for a synopsis of events;

• Pacific Continental Securities (UK) Ltd (PCS)

  Pacific Continental Securities (UK) Ltd (PCS) was no stranger to controversy. Having courted negative publicity and bad press since 2004, PCS soon acquired the unwanted accolade of being dubbed ‘Britain’s riskiest stockbroker.’

  In May 2007, the FSA became concerned about PCS’ ability to remain adequately capitalised as a result of the level of customer complaints that were referred to the Financial Services Ombudsman for which PCS was advised by its accountants to make a £2,000,000 provision.

  On 15 June 2007, PCS voluntarily varied its permissions with the effect that it would not subsequently undertake any regulated activity except to the extent necessary to close and settle existing customer positions. On 20 June 2007, PCS ceased trading and went into administration.

  In March 2008, PCS moved from being in administration to being in Creditor’s Voluntary Liquidation.

  In December 2008 the FSA issued a ‘Public Censure’ against PCS. It found that “The serious nature of the (rule) breaches identified ... would have led the FSA to impose a financial penalty of £2,000,000 were it not for the fact that the firm went into administration and is now in liquidation.”

  On 19 January 2009, the Financial Services Compensation Scheme (FSCS) declared PCS “in default”. This means that PCS is unable or unlikely to be able to meet its liabilities and as the UK statutory fund of last resort; the FSCS can step into the shoes of PCS and redress eligible claimants (subject to its limits). This has opened the doors for claims for compensation for which the authorities are budgeting for a cost of £100,000,000, however insiders believe claims could hit £300,000,000. Hallbrook Partners believe even this figure could be surpassed.

  On 28 January the FSA fined the former chief executive of PCS, Steven Griggs £80,000 and banned him from holding any ‘significant influence’ function with a regulated firm. Charles Weston, the former finance director of PCS was fined £95,000 and banned from carrying out any regulated activities.

  p>It was also deemed that Mr Griggs and Mr Weston misled the FSA about the true nature of their relationship with an individual linked to share fraud scams (also known as boiler room fraud).

  Important information for ‘nominee account’ clients

  Due to inadequate record keeping by PCS, the administrators could not properly reconcile the nominee accounts. Therefore if you do not hold share certificates your investments will almost certainly be lost. With this in mind, Hallbrook Partners encourages every PCS client to pursue a claim for compensation on at least the basis of a ‘return of property.’ FSCS will return the value of your investments as of the 19th January 2009 when PCS was declared “in default”. (Subject to its limits).

  It is likely that the value of your investments on 19 January 2009 is substantially less than the original investment you made. Hallbrook Partners can help to establish if you were a victim of mis-selling in which case you can claim back the entirety of your losses subject to the FSCS limits. Please contact us for more details.

• Square Mile Securities Ltd Formerly Halewood International Futures Ltd (SMS)

  Square Mile Securities Ltd Formerly Halewood International Futures Ltd (SMS) was subject to a Financial Services Authority (FSA) investigation between March and May 2006. As a result of this investigation, the FSA found failings that warranted a fine of £1,500,000. This was reduced to £250,000 because of the financial circumstances of the firm and its agreement to settle at an early stage of the investigation. Square Mile agreed to send its customers a letter advising them of the FSA findings which included information on how they could make a complaint. The fine and the letter to customers occurred in January 2008.

  Due to the nature and extent of the complaints Square Mile subsequently received, it became apparent quite quickly that Square Mile would not be able to meet its liabilities and it went into administration in March 2008.

  On 11 February 2008, the FSA banned Mr Mohammed Suba Miah, a former broker at Square Mile and fined him £21,000 for selling high risk shares to customers without their consent and deliberately misleading customers by not explaining the risks involved with such shares.

  On 10 July 2008, the FSA banned Mr Baljit Somal, a former broker at Square Mile and fined him £16,000 for selling high risk shares to customers without their consent and using unacceptable sales tactics.

  On 19 February 2009, the Financial Services Compensation Scheme (FSCS) declared Square Mile “in default”. This means that Square Mile is unable or unlikely to be able to meet its liabilities and as the UK statutory fund of last resort; the FSCS can step into the shoes of Square Mile and redress eligible claimants. (Subject to its limits).

  Important information for ‘nominee account’ clients

  Due to inadequate record keeping by Square Mile, the administrators could not properly reconcile the nominee accounts. Therefore if you do not hold share certificates your investments will almost certainly be lost. With this in mind, Hallbrook Partners encourages every Square Mile client to pursue a claim for compensation on at least the basis of a ‘return of property.’ FSCS will return the value of your investments as of the 19th February 2009 when Square Mile was declared “in default”. (Subject to its limits).

  It is likely that the value of your investments on 19 February 2009 is substantially less than the original investment you made. Hallbrook Partners can help to establish if you were a victim of mis-selling in which case you can claim back the entirety of your losses subject to the FSCS limits. Please contact us for more details.

• Mansion House Securities Ltd (MHS)

  Mansion House Securities Ltd (MHS) was fined by the Financial Services Authority (FSA) £122,500 on 31 March 2008 for breaches of the FSA Principles for Business and Conduct of Business Rules that occurred between 3 May 2006 and 18 January 2007. MHS agreed to settle at an early stage of the FSA’s investigation, thus qualifying for a 30% discount under the executive settlement procedures. Were it not for this discount the FSA would have imposed a financial penalty of £175,000. MHS was instructed to obtain on independent review of its current compliance with regulatory standards and also of its past business and to remediate customers where appropriate.

  With effect from 3 April 2009, the FSA varied MHS’ permissions and barred it from doing anything that would reduce the value of its assets. This includes paying ‘unusual or significant amounts’ to employees or bosses or to anyone connected with them. MHS cannot lend more than a small sum to anyone and it is prohibited from engaging in any kind of financial reconstruction or reorganisation without the consent of the FSA.

  However, the variation of permissions stopped MHS from taking on any new business which inevitably led to it being placed into administration on 30 April 2009.

  In the three years it had been in business MHS had employed more than 50 staff. Many were former employees of other broking firms that had attracted the attention of watchdogs. These included the notorious Pacific Continental Securities (UK) Ltd, which allegedly cheated its customers out of tens of millions of pounds, if not more, and which the FSA says it would have fined £2 million, had it not gone bust.

  Another firm where some MHS employees used to work is Square Mile Securities Ltd. In January 2008 it was fined £250,000 for using unacceptable sales tactics, making false statements and giving investors misleading information, all in a bid to sell high risk shares whether customers wanted them or not.

  On 24 November 2009, the Financial Services Compensation Scheme (FSCS) declared MHS “in default”. This means that MHS is unable or unlikely to be able to meet its liabilities and as the UK statutory fund of last resort; the FSCS can step into the shoes of MHS and redress eligible claimants. (Subject to its limits).

• Ascension Securities Limited (ASL)

  Ascension Securities Limited (ASL) did not escape negative publicity or the wrath of the regulator, the Financial Services Authority (FSA). Despite filing accounts in April 2009 showing a turnover of just over £2m and assets of more than £500,000, ASL ceased doing business on 22 May 2009 and formally went into liquidation on 7 July 2009.

  On 26 May 2009, ASL wrote to clients advising that as of noon on 22 May 2009, ASL voluntarily temporarily ceased carrying out regulated business whilst undertaking a full business review with the intention of providing a better and more efficient service.

  This wasn’t strictly true. On 6 August 2009, the FSA confirmed in writing to ASL’s clients that ASL’s decision to cease regulated business was following a visit by the FSA and subsequent to discussions held between the firm and the FSA. This was due to the FSA identifying potential breaches of the rules and principles that govern regulated firms such as ASL.

  ASL’s demise unsurprisingly mirrors that of other regulated smaller company stockbrokers. Director Gary Porter previously worked for Mansion House Securities Ltd. Co director Derek Leonard Scrivener had also been a salesman at Mansion House. Another director, Robert Joseph Fucilla, worked at Pacific Continental Securities (UK) Ltd and Square Mile Securities Ltd. Staff included Rajan Aggarwal, who worked at both Mansion House and Square Mile, Costas Constanti who was at Pacific Continental and Square Mile, and Jonathon David Wicks, whose past jobs also included time at Pacific Continental and Square Mile. Another notable member of staff was Luc Jean Chaudhary. After over five years as a salesman at Pacific Continental, he joined Mansion House in 2006 and became a director. In March 2008, Mansion House was fined by the Financial Services Authority (FSA) £122,500 for breaches of the FSA Principles for Business and Conduct of Business Rules. Chaudhary left Mansion House in May 2008 and joined Ascension Securities Ltd.

  On 13 January 2010, the Financial Services Compensation Scheme (FSCS) declared ASL “in default”. This means that ASL is unable or unlikely to be able to meet its liabilities and as the UK statutory fund of last resort; the FSCS can step into the shoes of ASL and redress eligible claimants. (Subject to its limits).

• Wills & Co Stockbrokers Ltd Formerly Grahame H. Wills & Company Limited (WILLS)

  Wills & Co Stockbrokers Ltd Formerly Grahame H. Wills & Company Limited (WILLS) was one of the City’s oldest stockbroking firms. Set up in 1883 as the financial services division of the Wills tobacco business it fell foul of the Financial Services Authority (FSA) in October 2007. For breaches of the FSA’s Principles for Business in relation to advising and selling certain higher risk smaller capitalised securities to private customers, the FSA imposed a financial penalty of £49,000 on Wills. Wills agreed the facts and matters relied on with the FSA and agreed to settle the matter at an early stage of the proceedings and therefore qualified for 30% reduction in penalty. Were it not for this discount, the FSA would otherwise have sought to impose a financial penalty of £70,000.

  The FSA visited Wills in May 2008 in order to establish, inter alia, whether it had rectified the failings identified in October 2007 and had implemented the remedial actions required. As part of the work during and following the visit, the FSA reviewed a sample of transactions conducted by Wills after 1 November 2007 and concluded that Wills had failed to take adequate and appropriate steps to address the issues previously identified. The FSA notified Wills that it had continued concerns with its selling practices and its failure to provide satisfactory evidence that adequate steps had been taken to strengthen systems and controls and change the selling practices.

  In November 2008, Wills was referred to the Enforcement Division of the FSA. The investigators reviewed a further sample of transactions conducted by Wills between 17 January 2009 and 17 March 2009 and had serious concerns that, although Wills had improved its processes and procedures in some respects, it still continued to demonstrate the same or similar failures for which it was disciplined in October 2007. Concerns of varying degrees of seriousness were identified in all of the transactions reviewed.

  On 4 December 2009 the FSA varied the permissions granted to Wills which resulted in Wills being unable to advise retail clients on the purchase of securities.

  Wills did not take the FSA’s decisions lying down. It instructed a ‘top four’ consultancy firm – at a cost of approximately £1.5m - to review its compliance and sales practices. Controversially, Wills did not comply with the Financial Ombudsman Service (FOS) rulings and refused to release information under the Data Protection Act 1998. In the first half of 2010, the FOS had 387 investment complaints referred to it about Wills, finding 99% in favour of the consumer.

  On 17 February 2010, the FSA censured Will for poor sales practices and not monitoring its advisers properly despite a fine and a previous requirement to take remedial action. The FSA also noted that Wills failed to handle its customer complaints properly. The FSA would have fined Wills £1,500,000 had it not been in the process of winding down its business and had a large amount of customer redress due.

  Furthermore, the FSA issued statements of misconduct against Darren Lansdown, Wills sales director and Katharine Prichard, its compliance director. Both directors have signed undertakings not to hold senior management functions in the financial services industry for 3 and 5 years respectively.

  On 25 March 2010, the FSA lodged a petition for the winding up of Wills in the High Court.

  On 29 June 2010, the Financial Services Compensation Scheme (FSCS) declared Wills “in default”. This means that Wills is unable or unlikely to be able to meet its liabilities and as the UK statutory fund of last resort; the FSCS can step into the shoes of Wills and redress eligible claimants. (Subject to its limits).

  On 21 July 2010 the hearing for the winding up of Wills was adjourned as it was circulating a company voluntary arrangement (CVA) with its creditors. The CVA was approved on 20 August 2010, consequently the FSA withdrew its petition for the winding up of Wills.

The following firms have also been declared in default by the FSCS;

• Saint Pauls Capital
• Everett Financial Management Formerly Sky Capital UK
• Park Financial Consultants

Regulated Firms not yet declared in ‘Default’

We may also be able to help with any of the following firms, which we expect to be declared in ‘default’ at some point in the near future.

• Gracechurch Investments
• Bishopsgate Capital
• White Square Investments
• Arc Equities
• Montague Pitman
• First Colonial Investments
• Astor Securities

If you have dealt with a regulated firm not mention above please contact us 0115 822 1850