The Solicitors Disciplinary Tribunal refused the Solicitors Regulation Authority’s first attempt to broker a cut-price punishment with a City firm, it emerged today.
According to a published SDT judgment, the SRA had agreed with Locke Lord that it should be fined £250,000, but was ordered by the tribunal to revise its estimate after being told the penalty was not heavy enough.
In a highly unusual step, the tribunal’s Andrew Spooner released a statement to accompany publication of the judgment.
The US firm was eventually fined £500,000 – a record for the legal profession – after admitting four charges relating to its failure to supervise a solicitor who is alleged to have been involved in ‘dubious’ financial arrangements or investment schemes. The firm has accepted that £21m passed through its client account over two and a half years relating to the schemes and it has admitted an allegation of a lack of integrity.
Spooner, chairman of the tribunal division that dealt with the case, today accused the SRA and/or executive director David Middleton of ‘inaccurate and misleading’ quotes regarding how the prosecution was presented.
The SRA released details of the fine on Wednesday. The tribunal had sat in private last month and was presented with a £250,000 fine as agreed by the SRA and Locke Lord. It has now emerged that the tribunal asked for more information from both parties and ordered a three-hour hearing, also in private, for 6 November.
Following that hearing, the tribunal said the proposed fine ‘did not reflect the seriousness of the matter’, explained Spooner, and the agreement was refused.
It was only after the tribunal indicated the appropriate fine was £500,000, plus £25,000 costs, that the SRA and Locke Lord made a joint application with the revised penalty.
Middleton told the media on Wednesday that the tribunal was ‘waking up to the importance of deterrence’.
Spooner said today: ‘For the public and the profession to have confidence in its regulators, it is essential that they act accurately and with integrity. This extends to comments/observations that they may wish to make in the media.’
The judgment reveals that the SRA had originally estimated its costs for investigating and prosecuting the matter was £125,000. This was revised down to £25,000 in the agreement with Locke Lord.
The firm admitted that between September 2012 and March 2015, it failed to have effective systems and controls in place to identify and assess potential conflicts of interests.
The judgment states that in August 2012 the firm began to act, through its solicitor, on a series of transactions for clients purporting to operate an investment scheme offering very high yields. Investment funds were received into the firm’s client account from individual and corporate investors, which were placed into one of seven separate trusts.
Despite a total £21m investment, there appeared to be no verifiable returns, and the SRA received a number of complaints from or on behalf of investors in October 2015.
The solicitor, named in the judgment as Jonathan Denton, has not admitted any allegations against him and will appear before the tribunal at a future date.
The firm has said the matters investigated by the SRA concern only the actions of Denton and relate only to clients for whom he worked. None of the firm’s other clients were affected by these actions.
‘We regret what has happened, but we are pleased to note that the SRA accepted our position that the firm and its senior officers did not act dishonestly or with conscious impropriety,’ it said in a statement.
‘In consideration of matters that came to light, steps were taken to review existing practices and procedure. A number of changes and improvements were made.'
Update 13 November. The SRA has stressed that, when initially announcing the fine, it had been unable to reveal what occurred in the private sessions. A SRA spokesperson said: 'When speaking to the media on specific cases, we are always careful not to discuss anything that was debated in a private session at tribunal. In this instance, the tribunal subsequently published details of those private discussions.
'We have regularly warned solicitors about the risks and seriousness of becoming involved in questionable investment schemes. We proposed a fine that would have been the joint highest ever imposed on a firm. In all agreed outcome cases, the final decision rests with the tribunal.'