Industry bans imposed by GFSC for unlicensed work and exploitation

Friday 11 June 2021

The MD of a wealth management company exploited an elderly client by selling them shares at a grossly-inflated price before pocketing the money for himself.

The investigation against Criteria Wealth Management Limited Managing Director Mark Peter Penney and Director Marc Adam Roxby has been described as the "standout" case of 2020 in the GFSC's newly-published annual report.

In that report, the GFSC said 2020 had been a "highly disruptive year" because of the pandemic. In total, there were seven prohibition orders made last year for varying periods of time.

"From a consumer perspective, one case stood out in 2020," said GFSC Director Simon Gaudion. "An insurance intermediary was conducting Category 2 controlled investment business under the Protection of Investors Law, without an appropriate licence to do so."

Of the £130,000 invested by Client X, Mark Peter Penney kept £125,000 for himself

"This meant that their professional indemnity insurance did not cover this business, which was to the detriment of those that had invested and lost considerable amounts of money."

A complaint was first made to the Commission about CWM in May 2017, from a licensed entity on behalf of a former client of CWM’s, referred to here as Client X. 

These documents disclosed a sale of CWM’s shares to Client X by Mr Penney. The pattern of advice evidenced in the Client X file raised concerns of widespread similar practice of unsuitable advice and led to the Commission reviewing a sample of other client files. 

Investigators found that CWM had been advising on and promoting structured notes, which CWM was not licensed to do.  

It was also discovered that Mr Penney had sold shares in the firm to Client X with an indication that dividends would be paid, despite knowing the company was in poor financial health.

The shares were sold at "a grossly inflated" price and Client X ended up losing all of his £130,000 investment, which was made in two separate chunks of £65,000 at around three times the price paid by other investors. 

During the investigation, it was found that Mr Roxby could not justify their value when compared to other shares that had been sold to other clients.

There was no evidence of Mr Roxby providing any effective checks or challenge to Mr Penney – he simply signed off Mr Penney’s advice, even when there were "obvious questions" to be asked about the tax position and the suitability of the advice being provided.

"There were also serious conflicts of interest surrounding this transaction which were not managed in a manner that the Commission would expect," said Mr Gaudion. "The Commission will always seek to afford the general public protection against these types of operators."

No financial penalty was imposed upon CWM, as it had been compulsorily wound up on 31 January 2019, with no funds available for distribution to unsecured creditors. Had it not been for its liquidation, the Commission said the fine would have been in the region of £50,000. 

Mr Penney was ultimately fined £40,000 and given a six-year industry ban. Mr Roxby was fined £20,000 and banned for four years.