Misuse of Client Funds Leads to Director Disqualification for a Combined 14 Years for Stockbrokers.
This news story looks at a case in which two directors of a stockbroking company received significant director disqualification periods for a combined 14 years for the misuse of client funds. They were also fined and banned by the FCA for serious failings in relation to the protection of client monies. The lengthy disqualifications received, along with the fine and ban, demonstrate how seriously the directors’ misdemeanours were viewed by the Insolvency Service and the FCA.
What was the Director Disqualification for?
The press release about this case from the Insolvency Service reports that Mr David John Gillespie (‘Mr Gillespie’) the Managing Director of a stockbroking company, Pritchard Stockbrokers Limited (‘the Company’) and Mr David Allen Wellsby (‘Mr Wellsby’) the Financial Director, were disqualified as directors for eight years and six years respectively for the misuse of client funds.
The specific circumstances were that the Company traded in breach of the financial rules and regulations regarding the use of client monies, which led to client losses estimated at almost £3,000,000.00. The Company’s actions were in breach of the then Financial Service Authority’s (‘FSA’) financial rules and regulations regarding the use of client monies. It also appears that the then FSA were misled by the Company.
In addition both Mr Gillespie and Mr Wellsby were fined and banned by the successor to the FSA, the Financial Conduct Authority (‘FCA’) on 09 October 2014 for serious failings in relation to the protection of client monies, as detailed in this FCA press release.
This case is also notable because the Company Secretary at Pritchard, for a period of nearly three years, was Mr Craig Whyte (‘Mr Whyte’) who was involved with Glasgow Rangers Football Club and has also received a director disqualification period, in his case for 15 years for failing to avoid conflict of interest in the running of the club.
The Company was placed into special administration on 09 March 2012 with an estimated deficiency to creditors of almost £4,000,000.00.
In his Director Disqualification Undertaking, Mr Gillespie Admitted Misleading the FSA
Mr Gillespie admitted in a Director Disqualification Undertaking that he caused the Company to mislead the FSA and trade in breach of its rules and regulations. By using client monies and therefore causing an estimated client cash shortfall of almost £3,000,000.00.
Under FSA rules, client monies were supposed to be safeguarded and if there was any daily shortfall on the accounts then that shortfall, if unpaid, should have been notified to the FSA. One shortfall was notified to FSA it was reported, however, that was not in the actual sum. Thereafter, no further shortfalls were notified until the FSA carried out a visit to the Company on 08 February 2012. It would appear on the evidence that the client shortfalls varied from between circa £360,000.00 and £2,600,000.00 (per day). At no time were the FSA notified of the shortfalls, which were in breach of their rules.
An Offshore Company Purportedly Provided a Form of Guarantee to Support Client Shortfalls
It was reported that purportedly an offshore company had provided a form of guarantee to support the client shortfall. However, it would appear that no legal documentation in support was produced.
In addition two separate guarantees, for c.£846,000, were purportedly provided by a different company, Tixway UK Limited (‘Tixway’), which were sanctioned by the FSA for the purposes of collateral restrictions on the Company’s capital requirements, but not in relation to any client money. A separate guarantee in the sum of £250,000.00 was neither sent to nor approved by the FSA.
It was also reported that Mr Gillespie caused one particular client to lose c. £235,000.00 by providing unsuitable advice to that client regarding an investment in a company of which the Company itself was a shareholder.
In addition, Mr Wellsby provided a Director Disqualification Undertaking on a similar basis other than he admitted allowing the Company to carry out the above whereas Mr Gillespie admitted that he caused the same.
Tixway was wound-up by the Court in Edinburgh on 02 July 2012. That is the company from which Mr Whyte’s Director Disqualification arose.
What Does This Director Disqualification Case Demonstrate?
As a consequence of the use of the client monies both of these Directors would appear to be unable to practice within the stockbroking industry in that they have been banned by the FCA as well as receiving lengthy periods of Director Disqualification. It goes to show that there are serious consequences for the misuse of client funds and that Directors can lose their livelihood and be banned from practicing in the industry that they know.
If you are facing director disqualification, it is always the case that the earlier you get in touch with us the better, when you are first approached by the Insolvency Service with an investigation. That is because it is more likely that we can help you. Please contact us or call us today on 0121 200 7040. Alternatively, why not email a copy of the enquiry or section 16 letter that you may have received from the Insolvency Service to us at firstname.lastname@example.org for a free no obligation and no pressure initial chat?
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