The Financial Services and Markets Tribunal has published its decision in the case of Fox Hayes v FSA. Fox Hayes, a firm of solicitors, appealed against a decision notice of 29 September 2006 in which the FSA found that the firm had breached various FSA principles and rules relating to the approval of financial promotions for unauthorised overseas companies (sometimes referred to as "boiler-rooms").
The main points in the Tribunal's decision are:
- There was no rule to prevent overseas companies contacting UK investors who had agreed to receive approaches or to protect them when they were sold investments over the telephone by these companies, the FSA had failed to issue clear and fair warnings in its press releases about such activities and there was a lack of guidance in relation to the rules.
- The Tribunal found that Fox Hayes took reasonable steps to ensure that the promotions it approved for overseas clients aimed at UK investors were clear, fair and not misleading and that it had conducted its business with skill, care and diligence, even though it could have made better enquiries. Fox Hayes had taken steps to check the companies and verify the factual information in the research reports; the firm was not required to ensure the reports were high quality. The companies has been recommended to the firm by an individual who had himself been recommended by a reputable NY law firm and an escrow account offered a substantial safeguard to investors (some of whom received refunds). The FSA had visited and corresponded with Fox Hayes but had not given any indication that the firm should not continue acting for the overseas companies or change its practices.
- The fact that an individual who introduced the business to Fox Hayes paid commissions to one of the firm's partners which he did not disclose to others at the firm did not give Fox Hayes reason to doubt that the overseas companies would treat UK investors in an honest and reliable way.
- However, by mid-November 2003, Fox Hayes did have cause to doubt that the overseas companies would treat UK investors in an honest and reliable way because, by that stage, correspondence from the press was increasing and a number of complaints had been received. In addition, a Fox Hayes internal memo provided evidence that there were concerns.The firm should have ceased to act.
- The Tribunal indicated that it would be minded to reduce the proposed penalty from £150,000 to £70,000 but invited further submissions in relation to the commissions.
View Fox Hayes v FSA, (PDF 263KB), June 2007