The High Court (the “Court”) recently found in favour of the Financial Conduct Authority (“FCA”) resolving that an unauthorised investment scheme must pay almost £1 million to the FCA to be re-distributed to investors as a result of several breaches by both the firm and its director.
Following an application by the FCA, the Court recently declared that Xcore Capital Limited (“Xcore”) and Jonathan Chitty (“Mr Chitty”) had carried on an unauthorised investment scheme (the “Scheme”). The Scheme took in approximately £1 million from investors but only a small portion of the money was used for trading.
The Scheme promised a 6% annual return to investors who were falsely informed that their investments would be traded on foreign exchange and equity markets. Instead investors’ money was used to fund Xcore’s Mayfair office, brokers’ wages and Mr Chitty’s lifestyle (including personal spending on watches, weddings and personally buying over £100,000 in crytpocurrencies).
The Court found that Xcore ran a deposit taking scheme without the required authorisation of the FCA breaching section 19 of the Financial Services and Markets Act 2000 (which states that a firm must not carry on a regulated activity, unless they are authorised or exempt) and that Mr Chitty was knowingly implicated in the breaches of the Scheme. The Court further ordered Xcore and Mr Chitty to pay the FCA £917,231, which is the full value of all outstanding sums owed to investors. The FCA will distribute the funds it is able to recover back to investors.
Additionally, the freezing order and injunction obtained against Xcore and Mr Chitty in November 2018 ordering the Xcore and Mr Chitty to stop selling investments regulated by the FCA, will remain in place until further notice.
This case shows that checking a firms’ background and authorisation by the FCA is of paramount importance to ensure any scheme and firm is legitimate. If a firm or scheme is not authorised, but is purporting to carry out regulated activities, or has not issued the appropriate warnings to investors with respect to unauthorised schemes, both the firm and the scheme may be acting contrary to regulatory requirements. Moreover, this is hot on the heels of the FCA’s and Action Fraud’s warning to the public about investment schemes carried on through online illegal trading platforms. The FCA revealed that crypto-asset and Forex scams exceeded £27 million in the 2018/19 financial year.
For guidance on avoiding fraudsters and online investment scams, the FCA has put together an online portal called ScamSmart. Please click here to check it out.
To view the full FCA press release, please click here.
For more information on or any guidance or advice, Cleveland & Co external in-house counsel, your specialist outsourced legal team are here to help.