Ruling: Court of Appeal upholds judgment that solicitor and former firm must pay £360,000

A solicitor and former law firm that were used to conduct a so-called 'boiler room' share scam, last week lost their appeal against an order to repay £360,000 to its victims.


The Court of Appeal turned down the arguments by John Martin, who is 50 years old and not currently practising, and two-partner central London practice Adrian Sam & Co - which dissolved in 2002 - that the High Court last year did not have power to make the order.


It also rejected the contention that the judge had been wrong in principle to make an order against the firm, because the only effect was to impose liability on Mr Martin's partner, Adrian Sam, who it was agreed had no knowledge whatsoever of what went on.


There is no suggestion that any of the solicitors were directly involved in the misleading sale of shares.


The scam saw one of the firm's clients, Spain-based Steven Wilkinson and his agents, cold-call people in the UK to buy shares at specified prices in up to four companies, which they said were set to increase substantially in value. They are called 'boiler room' activities because of the high-pressure sales techniques.


In total, 84 people paid around £930,000 into the law firm's client account. The shares were then purchased by Mr Wilkinson at half the price. Some, but not all, of the difference was paid by the firm to Mr Wilkinson and has not been recovered. He paid the firm around £60,500 in fees. The scheme collapsed in 2001 and the firm sought court directions as to the distribution of the money remaining in its client account. A Financial Services Authority (FSA) spokeswoman said it had been unable to trace Mr Wilkinson.


In granting summary judgment last year, Judge Caroline Alton ruled that Mr Wilkinson had contravened section 3 of the Financial Services Act 1986 - by being unauthorised to conduct investment business - and section 47 by making misleading, false and deceptive statements, while there was a triable issue in relation to section 57 on misleading advertising.


She found that Mr Martin, and therefore also the firm, had been knowingly concerned in the contravention of section 3, but had real prospects of defending comparable allegations in relation to the other two sections. They have not been tried.


The judge decided that, despite not being involved in the contravention, Mr Sam was liable for the acts and defaults of Mr Martin within the scope of the partnership business.


Mr Martin's solicitor, Hungerford sole practitioner James Barnett, said: '[This] is a cautionary tale for any professional adviser. To extract a judgment of this magnitude on a summary hearing demonstrates how far the judicial process has moved in recent years and further demonstrates that the small practitioner, in particular, is no longer able to make a mistake without punitive repercussions.'


Margaret Cole, the FSA's director of enforcement, said: 'Mr Martin and his firm were no more than a seemingly respectable front for a boiler room, and these investors believed that by paying money to a UK solicitor, their investment was safe.'


Mr Sam now practises in Southend, while Mr Martin is due to appear before the Solicitors Disciplinary Tribunal in February 2006 in relation to this matter.