The Upper Tribunal has upheld the decisions of the RDC in the cases against Stewart Ford and Mark Owen, the former CEO and sales director (respectively) of Keydata Investment Services Ltd (Keydata). See our previous Enforcement Watch article for coverage of the RDC decisions, including in respect of Peter Johnson (the compliance officer) who did not appeal to the Upper Tribunal. See Enforcement Watch 17 'Decision Notices in Keydata case decide on largest ever fine for an individual' for more information.
As many readers will be aware, the Keydata cases stem from the sale of structured products, backed by life settlements, to retail customers. The factual matrix surrounding the conduct of Messrs Ford and Owen is complex and lengthy and we do not propose to set it out here. However, in overview, the allegations against both men related to significant and unjustified fees taken from the corporate structures used to construct and sell the products and a failure to tell investors about very significant risks and issues with the products. In the largest ever FCA recorded fine for an individual, Mr Ford was required to pay £76m, with Mr Owen receiving a fine of £3,240,787. The rest of this article is given over to those aspects of these decisions that we believe readers will find particularly interesting.
The argument that decision makers (whether the RDC or the Upper Tribunal) ought to apply a higher standard of proof when considering allegations of very serious misconduct is now very familiar. The Tribunal was content that the relevant standard for it to apply was the balance of probabilities, even when making serious integrity related findings. However, it said that it was permissible for it to consider the quality of the evidence used to prove misconduct that was inherently improbable and to require a better quality of evidence the more improbable the misconduct (for example, by reason of its seriousness, or the lack of obvious motivation or similar previous misconduct).
The Tribunal also revisited the question of recklessness in the context of integrity (although it ultimately found that Messrs Ford and Owen both acted dishonestly). It is well known that recklessness may demonstrate a lack of “integrity”, for the purpose of the FCA’s assessment of “fitness and propriety”. Following its decision in Burns v. FCA, the Tribunal also confirmed that, in the context of the FCA’s regulation of financial services, an assessment of “recklessness” involved objectively considering what would reasonably have been appreciated or understood by persons in the same position as the individual in question. It was not necessary to show that the individual knew that the conduct might prove unlawful or unethical.
When looking at the level of fines, the Upper Tribunal endorsed the approach of the RDC. The bulk of the fines imposed on Messrs Ford and Owen was based on disgorgement of profit (fees). However, there was an additional £2.6m and £700,000 for each man respectively, reflecting the seriousness of the misconduct and the need to introduce a penal element. Neither sought to argue that such an award would cause them financial hardship, one consequence of which is that neither were required to disclose their asset positions.
The final outcomes in the cases against Messrs Ford and Owen may not be particularly surprising. Indeed, even the eye-watering fines imposed are readily explicable when one considers the need to disgorge profit (through fees). However, aside from the important points of law summarised above, this case does also demonstrate a level of commitment on the part of the FCA to what has been an epic process. The FCA's Warning Notice against Mr Ford was issued in 2011. Following an unsuccessful judicial review, a Decision Notice was then issued in late 2014. Even by today's standards, the process has been very protracted. Many factors appear to have contributed to the delay, not least the factual complexity of the matter and the fact that Messrs Ford and Owen were latterly not represented. Such cases will inevitably be time and resource intensive, but there can be little doubt that they do need to be brought and pursued to a conclusion. However, what is also clear is that such exceptional cases negatively impact on the ability of FCA Enforcement to swiftly progress the bulk of its caseload.