The UK regulator is facing claims it failed to halt activities of a suspected rogue trader
LONDON - The UK Financial Services Authority (FSA) is facing a multimillion-pound compensation claim from a group of investors who allege the regulator allowed GFX Capital Markets to continue trading even though they had serious concerns about its head Terry Freeman, according to reports in The Times.
GFX Capital Markets collapsed with losses around £44 million late last year, with more than 800 investors losing money. Even though Freeman blamed administrative problems, sources suggest there are elements of a Ponzi scheme - paying high returns with money from other clients' capital.
Disgruntled investors are claiming that the FSA was suspicious of Freeman yet failed to act until it was too late. According to the report in the The Times, FSA officials had gathered intelligence on Freeman, a foreign exchange trader, for more than two years, and knew he had changed his name from Terence Sparks after being disqualified as a director until 2012 in response to a conviction in March 1997.
However, Freeman set up GFX in 2004. Several reports are alleged to have been made to the FSA concerning issues surrounding Freeman's business practices between 2004 and 2007. In a letter to the FSA, BSG Solicitors, representing the investors, state: "The FSA was in a unique position, and had various opportunities, to bring Mr Freeman's dealings to a halt and thus significantly reduce the financial decline that my clients' investments were subjected to."
Freeman, who is on police bail, protests his innocence. The FSA refused to comment on an ongoing criminal inquiry.
More on Regulation
A fixed set of weighted criteria can help pick out systemically important banks, according to the EBA
Former SEC deputy enforcement head opposes 'broken windows' policy
Heavy regulatory costs and fragile systems will be problems in 2015
Unsuitable products have cost banks billions
Sign up for Risk.net email alerts
Sponsored webinar: IBM
Watch highlights of this year's London conference
Operational risk and the challenges of defining and dealing with conduct risk
Watch discussions and speakers from our North America conference
There are no comments submitted yet. Do you have an interesting opinion? Then be the first to post a comment.