The Financial Services Authority (FSA) has censured defunct broker Gracechurch Investments for misconduct, including using pressure-selling tactics, resulting in client losses of at least £2 million.
The FSA said Gracechurch, now in liquidation, pressured customers to invest in shares of small companies resulting in multi-million pound losses. It said it would have fined the firm £1.5 million were it not in liquidation.
However the FSA is planning to fine former chief executive Sam Kenny £450,000 and prohibit him from working in financial services.
Kenny has referred the matter to the Upper Tribunal which will determine whether to uphold the FSA’s decision.
The FSA said Kenny personally pressurised clients, misrepresenting material facts, and in his role as chief executive trained and encouraged staff to pressure clients.
The FSA said Gracechurch’s brokers used pressure sales tactics to coerce clients to invest in risky small company stocks, listed on AIM and Plus or not listed at all.
It added the firm misrepresented the financial performance of stocks and brokers ignored requests for further information and protests that clients had no funds to invest. In at least one case a broker claimed that the recommendation was based on inside information, the FSA said.
Between 1 April 2008 and 4 November 2009, Gracechurch advised around 340 clients to buy about £4 million of small company stocks. Clients would have lost 72% of the their investments in eight of the top 10 stocks sold by the firm if they had held the stocks until 12 October 2011.
The FSA said the firm also provided the FSA with false dates for internal committee meetings and withheld a recording of a non-compliant advised sales call it requested.
The firm also knowingly employed someone in a senior position who was not approved by the FSA and who was linked to pressure-selling tactics, it said.
The FSA has also prohibited former Gracechurch compliance officer Carl Davey. The FSA would have fined Davey £175,000 if it were not for the serious financial hardship such a fine would cause.
As compliance officer, Davey was involved in the deliberate withholding of the non-compliant advised sales call requested by the FSA, it said.
Tracey McDermott (pictured), director of enforcement and financial crime at the FSA, said: ‘High pressure sales tactics and systematic misrepresentation to clients are wholly unacceptable practices. The FSA will not tolerate firms coercing clients into buying financial products or services that aren’t suitable for them. Senior management of stockbroking firms should be clear that the buck will stop with them.’