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Update for investors – January 2006

In December 2005 the Court of Appeal confirmed that a solicitor and his law firm must pay £360,000 to 63 investors involved in a boiler room scam. The Financial Services Authority (FSA) has now begun the process of enforcing the payments, including establishing what assets are available. Investors are unlikely to get back everything they paid.

In December 2004, in a case we (the FSA) brought, 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's) 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.

Investors' prospects for recovery

As Margaret Cole, Director of Enforcement at the FSA said in the press release on 25 November 2005:

'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.'

At this stage, we are unable to comment with any certainty about the prospects of ASC and Mr Martin being able to pay the amounts awarded to each investor in the Court Order. We have begun steps to seek to enforce the High Court Order. However, investors must recognise the possibility that ASC and Mr Martin will not have the resources to meet the Order.

As the boiler room was not authorised by us, investors do not have access to the Financial Services Ombudsman or the Financial Services Compensation Scheme.

We regularly warn consumers on the dangers of boiler rooms. For further information visit Consumer Information.

Investors requiring further information should contact the FSA Consumer Helpline on 0845 606 1234.

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 buy certain shares which were offered at inflated prices. They 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.

On behalf of Mr Wilkinson, Mr Martin 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.

Advanced Technologies Group Limited, a company which the investors were buying shares in, went into administration in July 2005.

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 she ordered 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.

Notes

  1. 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'.

  2. 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.

  3. 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.

  4. The FSA aims to promote efficient, orderly and fair markets, help retail consumers achieve a fair deal and improve its business capability and effectiveness.