FSA/PN/094/2004
10/11/2004

Newcastle Crown Court today sentenced Malcolm Varrick to four years imprisonment on 10 counts of deception and 10 counts of false accounting totalling 1.16 million. The prosecution, by the Serious Fraud Office (SFO), was based partly on evidence gathered by a Financial Services Authority (FSA) investigation. Further details of the criminal prosecution can be found in the press release issued today by the SFO.

The successful SFO prosecution followed a High Court civil action brought against Mr Varrick by the FSA. The FSAs civil proceedings, which closed the scheme down in February 2001, alleged that Mr Varrick had used a number of companies to run an unauthorised deposit taking scheme in breach of the Banking Act 1987. Investigations by the FSAs enforcement division revealed that between 1999 and 2001 approximately 50 depositors had paid 4.25 million into the scheme.

Mr Varrick claimed to have developed computer software which enabled him to generate large profits through trading in stock market options. Depositors were offered returns of up to 8% per month (96% pa). In reality, no such trading profits were made, and the returns paid to some depositors were made up from the capital contributed by others, creating the illusion that genuine trading profits had been generated. Mr Varrick also used false bank and broker statements, produced on a home computer, to reassure depositors that their money was safe and that his trading was performing well.

Of the 4.25 million paid to Mr Varrick, 2 million had been repaid to depositors by way of capital and 'profits' leaving a shortfall of over 2 million. As a result of the FSAs civil action a further 13.6% of the shortfall was recovered for depositors. However, in this case, as with many illegal investment schemes, a significant amount of depositors' money could not be recovered because Mr Varrick had used it to fund his extravagant lifestyle.

Philip Robinson, Financial Crime Sector Leader at the FSA said: "These unauthorised schemes promise fantastic returns, but nearly always collapse leaving the investors facing huge losses. This is another reminder to investors that they should always check the FSA website to ensure that the person they are dealing with is authorised. It also demonstrates that the FSA will not tolerate unauthorised investment schemes and we will work with other law enforcement agencies to ensure that such schemes are closed down and the wrongdoers punished.

In June 2001 the FSA referred the matter to the SFO to consider whether any criminal charges should be brought, which led to Mr Varrick's conviction today.

Notes for editors

  1. Information about investment scams and advice on what to consider when making an investment is available on consumer website.

  2. 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; the appropriate degree of protection for consumers; and fighting financial crime. The FSA took over responsibility for the regulation of financial advisers from the Personal Investment Authority on 1 June 1998.

  3. The FSA aims to maintain efficient, orderly and clean financial markets and help retail consumers achieve a fair deal.

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