Jersey Court Rules Against Advisory Company

by Carla Johnson, Investors Offshore, London

20 February 2007

Last week, Jersey's Royal Court awarded judgment in favour of the island's Financial Services Commission in 27 out of the 28 cases it had brought against Alternate Insurance Services Limited alleging that it had 'recklessly misled' investors.

Investors bought high-risk investments believing that they were low risk and lost significant sums of money. The judge awarded a total of GBP1,564,128.56 to the investors to restore them to their previous position.

John Harris, the Director-General of the Commission stated, “The judgement shows that the Commission was clearly right to bring this case. As the judge commented, “the consequences for almost all of these investors was tragic.” The Commission has been pro-active in investigating 3 complaints and then widening the net to investigate the cases of all investors who were sold the product. In fact, many of the investors were not aware that they had been mis-sold the product, indeed many were not aware of the significant loan element forming part of the product and certainly not aware of its effect. The regulatory regime requires that firms offering advice offer suitable advice and the Commission was of the view that not only was the advice unsuitable for these investors but that they had been misled. Accordingly regulatory action followed and the Commission is pleased that its action has been successful and that investors have been awarded restitution”.

Mr Harris went on to state, “This judgment is not the end of this matter. We now have to do our best to recover as much money for the investors as possible. This will not be easy. As Alternate does not have any real assets, we will be exploring the options for recompensing the investors by bringing a case against the insurers in the UK and speaking with the lending institutions, Newcastle Building Society, Bank of Ireland and The Royal Bank of Scotland International, which were criticised by the judge.”

The Court was highly critical of the conduct of the two investment advisers Mr Clark and Mr Le Fustec. However, the Court approved of the settlement between Mr Clark, Mr Le Fustec and the Commission describing it as “appropriate”. Under the terms of the settlement both advisers have agreed to give undertakings to the Court preventing them from future involvement in the financial services industry. Under the terms of the undertakings they will not be permitted to act as a principal person in relation to any person or persons carrying on financial service business in Jersey or elsewhere and they will not be permitted to act in any capacity that involves the giving of investment advice. They have also expressed deep regret for the failures of Alternate together with any loss and distress this has caused to members of the public. Additionally the Commission obtained Affidavits of Means provided by Mr Clark and Mr Le Fustec in order to determine what would be an affordable contribution by them to be put towards the costs of future proceedings to recover monies for the investors.

The Commission believes that the undertakings given by Mr Clark and Mr Le Fustec will provide adequate future protection for the public of Jersey in relation to any financial service business they may otherwise have carried out.

The Commission accepts the Court’s recommendation that a full review is now made as a matter of urgency, so as to identify whether the regulatory regime can be strengthened still further and to learn as many lesson as possible from what the judge described as a “regrettable affair”. The judgment raised many issues to be considered by the Commission relating to compensation schemes, the registration process for financial advisers, public indemnity insurance, and the scope of certain terms in the Financial Services (Jersey) Law 1998. The Commission says it is committed to considering each issue properly and promptly with full consultation before deciding if changes need to be made in addition to the courses of action open to it to attempt to recover as much money as possible for the investors in this case.

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