Financial Services Authority (FSA) - Regulation of financial services - Collapse of hedge fund

Visser and another v Financial Services Authority: Upper Tribunal (Tax and Chancery Chamber) (Mr Justice Bishopp, Keith Palmer, Terence Carter): 9 August 2011

The applicants, V and F, were involved in the running of a UK company which was authorised by the Financial Services Authority (the authority) which acted as investment manager for a Cayman Islands hedge fund. V was the chief executive officer and a director and F was employed as the company’s chief finance officer. Both V and F were approved persons.

The fund had about 20 investors and an amount under management of about €35m. The fund collapsed and was placed in voluntary liquidation in 2008. The authority contended that V and F had committed market abuse; deliberately and repeatedly breached the investment restrictions placed on the fund; undertook transactions designed to give a false impression of the fund’s assets; and concealed important information such as the true nature of the fund’s investments, the resignation of its prime brokers and the consequential loss of margin, and its increasingly precarious financial position, from investors who were unable to withdraw their investments in time, and from new investors who put money into the fund.

The authority issued six decision notices relating to V and F in 2010. The decisions relating to V imposed upon him a penalty of £2m for breach of Principle 1 of the authority’s statements of principle for approved persons, and for engaging in market abuse, and preventing him from continuing to perform the functions to which his approval related and prohibiting him from performing any regulated activity. The decisions relating to F were identical, save that the financial penalty imposed was £0.5m. V argued that the Authority had erred in its factual findings. F accepted the factual case of the authority, but argued that the penalty was too high.

The Tribunal held: The tribunal was satisfied that both V and F embarked on a deliberate and calculated course of concealing facts from investors and of misleading them. V had not disputed the Authority’s case in that respect. F’s claim that the investors were not in fact deceived or misled would be dismissed. There was nothing that suggested the starting point of £2m should be adjusted in relation to V’s fine. Taking into account the personal circumstances of F, the fine in his case would be reduced to £0.1m (see [102], [122], [125] of the decision).

V did not appear and was not represented. Mark Fenhalls for F. Javin Herberg QC and Simon Pritchard for the Authority.