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FSA sued over ‘botched’ Cameron Farley case

By Ian Fraser

Published: The Sunday Times

Date: May 23rd, 2010

Investors say they lost £20m when assets were not frozen. By Ian Fraser

IT was a scene that could have been straight from the pages of a John Grisham novel. When officers from the Financial Services Authority landed, unannounced, at the Edinburgh headquarters of Cameron Farley in a dramatic swoop three years ago, it was clear serious alarm bells were already ringing over the actions of the foreign-exchange trading firm. However, more than a year passed before the company was formally closed down by a court order — after the regulator discovered that the organisation was not authorized to accept deposits.

Now a group of investors who lost around £20m as a result of the firm’s demise are set to sue the Financial Services Authority over its alleged mishandling of the case. The Cameron Farley Action Group claims that when the FSA issued a “freezing and arrestment” order on Cameron Farley on September 2, 2008, it seized all assets and monies held by Cameron Farley but failed to secure funds already on the Gain Capital trading platform used by the forex house. In doing so, the group alleges, the FSA presided over the loss of a large percentage of customers’ funds.

Grant Thornton was appointed by the court as liquidator on October 21, 2008, on the recommendation of the regulator. In the period following the FSA’s order, documents obtained from the liquidator show $17.5m had been lost in trades on the Gain Capital trading platform.

The action group claims the regulator ignored numerous red flags about Cameron Farley and Stephen Farley (pictured above right), its sole director. He is a Dalkeith resident who was jailed for fraud in the mid-1990s. The investors claim the delay in securing the Gain Capital funds resulted in their being exposed to massive losses. In particular, the action group believes the FSA failed to protect consumers by allowing Cameron Farley to continue to trade and to take in deposits from investors even after the regulator became aware of irregularities in Farley’s claimed credentials.

“Regardless of the reasons why, the facts are as they are,” says Martin Popham, of the action group. “There was $17.5m on account at Cameron Farley at the time of the FSA’s freezing order. This entire sum was lost on trades over the course of the next three weeks, during a period when the company and all its assets were supposed to have been ‘frozen’ by the FSA.” The group is now in discussion with three legal firms to prepare a case. It is also calling for a fully independent investigation into the matter.

Cameron Farley was incorporated in March 2004, when it began to entice in investors by offering “loan agreements” promising annual returns of 9.25%, plus an annual bonus payable at the discretion of the company. The St Andrew Square-based company built up a formidable client base almost entirely through recommendations between friends, family and business acquaintances. By June 2005, the FSA had already noted concerns about the company, after discovering that Farley did not have the Securities Institute qualification he claimed, on the company’s website, to have. At that point, Farley also failed to disclose previous investigations and two previous convictions, one for theft and the other for fraud.

The FSA waited until April 2007 before making its surprise visit to Cameron Farley’s premises on St Andrew Square — during which Farley informed the regulator that Cameron Farley conducted its forex trading on the New York-based Gain Capital platform. This is recorded in the FSA’s interdict dated 2 September, 2008. A month later, the FSA formally instructed Cameron Farley to cease all forex business and to stop taking in new funds until the forex firm had satisfied the regulator that certain tough conditions had been met and that its approach to the business had been fundamentally changed. However, the action group claims that there is no evidence that these conditions were met or that the FSA enforced them.

Despite this, Cameron Farley was allowed to continue trading and take in deposits until the firm was finally closed down by a Court of Session freezing and arrestment order on September 2, 2008. In the 12 months prior to that date, in excess of £24m was credited to Cameron Farley’s bank accounts. Popham claims these funds were raised from investors “who had no knowledge of the FSA’s prior concerns or investigations, or indeed stipulations that Cameron Farley must stop trading and accepting funds.”

This was about three years after the FSA admitted having concerns about the company’s activities and the integrity of Stephen Farley. Yet, Popham claims, little was done to inform or warn investors away from placing their life savings with his company. It is understood that only one-tenth of the £24m has been traced by Grant Thornton.

Craigan Lingwood, a Perth-based entrepreneur who lost money with Cameron Farley and who is supporting the legal action, says: “The whole thing stinks of a cover up.We feel that we have been shafted by the establishment. The information we’ve received to date from the FSA is at best woolly and at worst just of a string of vague and useless statements. I am sickened by the way the FSA and Grant Thornton have been handling this.”

The FSA said: “In 2008 we applied to the High Court in Scotland for the winding up of Cameron Farley Limited. We took this action in order to protect consumers who had dealt with the firm because it may have accepted deposits without FSA authorisation. Our application to the High Court for the appointment of this independent liquidator was approved as the most appropriate route to protect the company’s assets. It is our view that the actions we have taken have been in the best interest of consumers. However, as is our normal practice, we will consider carefully the concerns raised by any consumers affected by the liquidation.”

Grant Thornton declined to comment.

  • This article was published in the business section of Sunday Times Scotland on May 23, 2010
  • There are parallels with the FSA’s bizarre handling of the Vavasseur fraud case.

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6 Comments for “FSA sued over ‘botched’ Cameron Farley case”

  1. An interesting article. Was Cameron Farley actually regulated by the FSA or was it an unregulated firm? If regulated, then arguably the section on the FSA Register for disciplinary history needs to hold an accurate record of actions being taken (which it never seems to do) and if it was NOT regulated, unfortunately, while the FSA may be at fault for not shutting things down quickly enough (and seizing/controlling assets when they should), arguably it should not be the F-pack (FSA; FOS or FSCS) who should pick up the bill for the mistakes (as the F-pack are funded by people like me i.e. IFAs with no control over this bunch of idiots), but should instead be paid for by reversing the £20 million of bonuses paid to FSA employees for a job well done as the job has NOT been well done.

  2. Cameron Farley was not regulated at the time of having its assets frozen, however as we understand it, after officers from the Financial Services Authority landed unannounced at the Edinburgh headquarters in 2007, part of their remit for Cameron Farley to continue in business was to become regulated and again evidence we have suggests this to be true, however we believe Grant Thornton the joint administrator/liquidator have denied this. Until the full facts in this matter are divulged this area will remain unsolved, however the evidence we have suggests that a well known compliance firm was involved, even confirming the application to a prospective client and we also believe clients made inquiries into this matter before investing but were given no indication of concern whatsoever.

    I can understand your concerns regarding picking up the bill and have every sympathy, however we are not asking this of IFA’s as neither did we ask the FSA to step in and freeze the assets (If they had not and the money disappeared we could not complain) however they did and the money was there, but shamefully lost after the freezing order, 2 September 2008, and as of this moment (two years hence) we still have not got an explanation why!

  3. Vaguely hopeful

    I believe that over the coming months many more people will come out of the woodwork with serious complaints about the FSA – who, they quite rightly feel, has let them down. But I also believe we need to look at some of the reasons why the FSA has, over the last few years, has behaved in a manner best described as a ‘limp lettuce leaf’? It’s entirely possible the FSA has been operating with its hands tied behind its back while wearing a gag and a blindfold – because the Government in power for the last 13 years wanted no interference from them while it handed the wealth of the Country to a handful of bankers and especially Scottish bankers. Someone really does need to investigate why any Government was allowed to do this and what secret files (like the secret dossier on HBOS) have been buried which should now be revealed in the public interest.
    I am not the FSA’s biggest fan but I can say I have already noticed a marked change in attitude at the FSA headquarters and it’s not a coincidence. Who knows – we may yet find there are many people in the FSA building who really do have teeth. But that still leaves the issue of the FSMA2000 which, as bible’s go, is very vague and open to some dubious interpretation.

  4. [...] Cameron Farley / FSA /Grant Thornton [...]

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