A financial advice network, Sense, has escaped liability following a fraud by one of its appointed representatives. The adviser, Alistair Grieg of Midas Financial Solutions had set up a ‘Ponzi’ scheme, defrauding clients of millions of pounds.
Greig claimed that he could earn his clients high rates of interest on bank deposits. In fact, he placed his clients’ money into a bank account he controlled, paying out the ‘interest’ payments using the cash of later subscribers. In total he took in around £27 million, paying out over £26 million.
The fraud was uncovered when a whistle-blower reported Mr Greig’s activities to the Sense network. The clients then brought a claim against Sense to recover their losses. They made multiple allegations against the network, including breach of supervisory obligations, failure to monitor and failure to investigate.
The court concluded that Sense was not liable. The judge ruled that the scheme and ‘advice’ provided by Greig were well outside the scope of the business for which Sense took responsibility. It was also said that Greig was operating the scheme without authorisation.
James Burgoyne, Director – Claims & Technical, Brunel Professions says: “Sense was completely in the dark about the fraud and was able to successfully defend itself as there had been no failure of supervision or compliance by the network. However, if the Ombudsman had had jurisdiction, and the claimants had taken this route, very different outcomes might have been experienced.”
Leave to appeal has been granted on several grounds. Robert Morfee of Cubism Law, the claimants’ solicitors, said, “We regard the judgment as unsatisfactory in a number of respects. There are public policy aspects to the case which merit the judgment being scrutinised by the Court of Appeal.”
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