A pension administration firm has failed to overturn a Financial Ombudsman’s (FOS) decision after it invested a client’s money in a fraudulent ‘green oil’ scheme.
Berkeley Burke, a Self-Invested Personal Pension (SIPP) administration firm, was ordered to compensate its client, Wayne Charlton, for his losses.
Mr Charlton had been introduced to Berkeley Burke by an unregulated financial adviser. He wanted to invest his £29,000 pension savings into an investment scheme promoted by Sustainable AgroEnergy plc. Argo claimed that it would buy land in Cambodia to grow jatropha trees that would be used to create bio fuels.
The scheme was a scam. Mr Charlton lost his entire investment along with 616 others who had invested over £12 million in the scheme through SIPPs administered by Berkeley Burke.
Mr Charlton complained to the FOS. The Ombudsman found in his favour on the grounds that Berkeley Burke had failed to undertake adequate due diligence on the investment. The FOS said that Berkeley Burke should have refused to accept the investment in Agro as suitable for a SIPP.
Berkeley Burke sought a judicial review of the decision. It argued that it was not liable for Mr Charlton’s losses as it acted in accordance with the Financial Conduct Authority’s (FCA) ‘Conduct of Business Sourcebook’. It claimed that because it was acting on an ‘execution-only’ basis it had no need to undertake due diligence on the investment. Berkeley Burke said that by expecting it to do so, the FOS had applied the FCA’s Principles for Business in a new and unexpected way.
In the High Court, Mr Justice Jacobs found in favour of the FOS. He agreed that Berkeley Burke should have refused to accept the Agro investment into a SIPP.
“I accept Berkeley Burke had no obligation to give advice to Mr C, or to ensure otherwise the suitability of an investment for him. My finding isn’t that Berkeley Burke should have concluded that Mr C wasn’t a candidate for high-risk investment. It’s that Berkeley Burke should have concluded the investment wasn’t acceptable for his pension scheme,” said Mr Justice Jacobs.
James Burgoyne, Director – Claims & Technical, Brunel Professions believes the ruling may lead to more claims against SIPP operators, but noted that Berkeley Burke has applied for leave to appeal. “We’ll need to wait to see the longer-term implications of this ruling. SIPP operators should reject investments which could be fraudulent, but it will be far harder for them to assess whether they should accept other high-risk investments when they are acting in an execution-only basis. SIPP operators may become very cautious as a result.”
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