Last week, the Court prevented two unregulated introducers and their directors (the “Defendants“) from seeing documents linked to an investigation by the FCA into pensions’ providers and financial providers that did business with the Defendants. The Defendants are currently on trial in the High Court and stand accused of having given unauthorised and misleading advice about retirement investments to consumers.

Background

In 2017, the FCA commenced civil proceedings against two unregulated ‘pensions introducers’, Avacade Ltd and Alexandra Associates U.K. Ltd, and their directors, who the FCA allege were “…each knowingly concerned in [the] breaches“.

The FCA allege that the Defendants breached financial market rules by making misleading statements and carrying out regulated activities/communicating financial promotions without FCA authorisation/permission.

The FCA has accused the Defendants of persuading more than 1,900 investors to transfer £86 million from their occupational pensions into self-invested personal pensions. The Defendants allegedly dissipated £70 million into high-risk alternative investment schemes such as tree plantations for timber in Costa Rica and teak plantations in Sri Lanka and Malaysia. The FCA claims that the Defendants received more than £10 million in commission despite the investments failing.

The Trial – Shifting the Blame

The Defendants had sought access to unredacted interview notes and other materials prepared during the FCA’s investigation, arguing that these would refocus blame onto their business associates and absolve them of any wrongdoing.

The FCA maintained that the documents requested by the Defendants were confidential, and all information relevant to the accusations against the Defendants had already been provided to them.

The judge agreed with the FCA, ruling that the document requests were a “general roving inquiry” and the materials requested would not help the Defendants. The FCA has also previously been successful in blocking attempts made by the Defendants to obtain confidential documents from its investigation prior to the commencement of the trial.

The Defendants argue that their activities did not constitute regulated activities as they simply steered clients to qualified advisors who made the investments, and they therefore have not broken the law. For example, the Defendants state that the FCA should in fact be prosecuting financial advisor BlackStar Wealth Management as they had encouraged consumers to purchase bonds in the Brazilian property market. However, the FCA considers this firm to be a “patsy” that did not offer independent advice.

Potential Consequences

The trial will determine whether the Defendants are liable for breaches under the Financial Services and Markets Act 2000 and the Financial Services Act 2012. A second trial could be held at a later date to determine how much money the FCA can recoup from the Defendants in favour of consumers affected by the alleged breaches. Should the Court rule in favour of the FCA, it could result in the Defendants being ordered to pay tens of millions of pounds in restitution payments for violating market rules by promoting the high-risk investment schemes.