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.
The week in Risk.net, February 10-16 2017Receive this by email