Eight former partners of collapsed Leeds firm Fox Hayes have been held personally responsible for a fine of nearly £1m which was levied against the firm 18 months ago by the Financial Services Authority and remains unpaid.
The upper financial services tribunal decided earlier this year that some former partners were individually liable for a £954,770 fine levied on Fox Hayes for its part in a £15m ‘boiler room’ fraud.
In February 2009, the FSA fined Fox Hayes for failing to take reasonable steps to prevent the fraud, which affected 670 UK investors. Fox Hayes used its status as an FSA-authorised firm to approve promotional material used by the boiler room fraudsters.
The tribunal was answering questions remitted to it by the Court of Appeal. It is understood that at least one of the former partners is appealing the tribunal’s decision.
The FSA began its investigation into Fox Hayes’s involvement in the fraud in April 2004. Fox Hayes then converted to a limited liability partnership, Fox Hayes LLP. The FSA later refused a request from Fox Hayes LLP partners to cancel its authorisation of Fox Hayes, citing its ongoing investigation. The FSA then issued a decision notice, stating that Fox Hayes, rather than Fox Hayes LLP, was liable for the fine.
The tribunal held that the fine had been imposed on Fox Hayes, rather than Fox Hayes LLP, meaning that the former Fox Hayes partners were joint and severally liable to pay the fine.
The tribunal rejected the various arguments advanced by different partners: that Fox Hayes had been dissolved by the time the FSA served its decision notice; that Fox Hayes’s authorisation had passed to Fox Hayes LLP; that the decision notice did not affect former partners because it had not been served on them individually; that some partners were not consulted by others in connection with the FSA’s case; and that the FSA delayed issuing its decision notice.
The tribunal did not suggest that the firm dishonestly dissolved its partnership to evade liability.
The tribunal also rejected an argument that the fine could be imposed only on Fox Hayes as a firm, rather than the individual partners. It held that the salaried partners at the firm were not jointly liable for the fine; and that one former partner was liable for a reduced share of the fine, because he retired from the firm after just three of 20 fraudulent financial promotions had been approved.
In their submission, administrators said that the Fox Hayes partners, and not Fox Hayes LLP, should be liable to pay the fine. They said there is little prospect of a dividend for unsecured creditors.