The Financial Services Authority today (17 February) won an appeal against Leeds legal firm Fox Hayes over its failure to take reasonable steps to prevent a $21m (£14.7m) ‘boiler room’ fraud that hit 670 UK investors.

Fox Hayes used its status as an FSA-authorised firm to approve promotional material used by overseas boiler room operations to defraud UK consumers. The firm approved 34 financial promotions for five unauthorised, unregulated overseas companies between 2003 and 2004. Using the promotional material as the first point of contact, these companies went on to illegally sell shares to the UK investors.

The decision overturns an original ruling by the Financial Services and Markets Tribunal. As well as finding that Fox Hayes broke FSA rules by approving material that allowed boiler room fraudsters to target UK investors, the Court of Appeal increased the original penalty levied by the tribunal from £146,000 to £954,770. The revised penalty includes a £454,770 commission made by the former senior partner at Fox Hayes.

Margaret Cole, FSA director of enforcement, said: ‘This decision supports our view that firms that assist boiler room operators should be brought to task for their role in perpetrating boiler room fraud and share scams. We hope this will send a strong message of deterrence to other firms and individuals that may turn a blind eye to the legitimacy of their clients in exchange for fees or commission.’

In his judgment, Lord Justice Longmore said: ‘In my view, the misconduct which this case revealed was serious. There was a failure (on Fox Hayes’s part) to take reasonable steps to ensure that the promotions by the overseas companies were clear and not misleading. There was also serious doubt that the overseas companies would deal with UK investors in an honest and reliable way.’

The Court of Appeal hearing against the tribunal decisions took place on 16 and 17 December 2008.