Judgment summary
This case concerned references made to the Upper Tribunal by Stephen Burdett and James Goodchild against Decision Notices issued by the Financial Conduct Authority (the Authority) on 19 August 2022. The Authority had decided to impose a financial penalty of £311,762 on Mr Burdett under s63A FSMA 2000 and £47,600 on Mr Goodchild under s66 FSMA 2000, and to make prohibition orders against both under s56 FSMA 2000 (paras 1-2).
The Authority alleged that Mr Burdett and Mr Goodchild created arrangements to funnel pension funds of retail clients into high risk investments connected with The Resort Group plc (TRG), an offshore property development group operating in Cape Verde (para 4). The investments failed and pension holders claimed compensation from the Financial Services Compensation Scheme.
Mr Goodchild did not attend the hearing for medical reasons and was not represented; the Tribunal decided it was in the interests of justice to proceed in his absence, having regard to his detailed skeleton argument and witness statements (paras 8-18).
The Tribunal concluded that Mr Burdett had knowingly acted as a director of Synergy Wealth Ltd without the Authority's approval and had acted without integrity in that role, and that Mr Goodchild had acted recklessly, and thus without integrity, in his role as investment manager at Westbury Private Clients LLP (paras 6, 34, 259, 334).
The references against the prohibition orders were dismissed. The Tribunal determined the appropriate financial penalty for Mr Burdett to be £265,071 plus continuing interest, and confirmed the £47,600 penalty for Mr Goodchild, remitting the references to the Authority with directions to give effect to these determinations (paras 6, 444-448).
Background
Synergy Wealth Ltd (Synergy) was incorporated in January 2016 as an appointed representative of Strategic Wealth UK Limited (SWUK), a firm controlled by Stephen Whittam. Mr Burdett became an equal shareholder and was appointed a director of Synergy on 29 January 2016, though the Authority never approved his application to perform the CF1 (Director) controlled function (paras 142-147).
Westbury Private Clients LLP (Westbury), co-founded by Mr Goodchild, was the discretionary investment manager for a Westbury-branded SIPP administered by Gaudi Regulated Services Limited. Mr Goodchild held controlled functions CF4 (Partner) and CF30 (Customer) at Westbury (paras 148-150).
First Review Pension Services Limited (FRPS), a subsidiary of TRG, introduced UK pension holders to Synergy. Synergy advised these pension holders to transfer their pensions to the Westbury SIPP, where Westbury operated three model portfolios (Global Cautious, Global Balanced and Global Growth) each with an allocation of approximately 40% to TRG Investments, comprising TRG Bonds, the Falcon RDF, and Escher Marwick Notes (paras 4, 151-166, 267).
232 pension holders transferred pensions to the Westbury SIPP with funds invested in TRG Investments, with an average allocation of 38.1%-38.8% depending on risk profile score (para 177). Gaudi stopped accepting new transfers from around 4 July 2016, shortly before a BBC Panorama programme aired allegations about FRPS and TRG (paras 168-169). The FSCS subsequently paid over £1.4m in compensation to over 100 pension holders (para 368).
Core dispute
The central disputes were whether Mr Burdett knowingly performed the CF1 (Director) function at Synergy without the Authority's approval and acted without integrity in that role, and whether Mr Goodchild acted recklessly, and thus without integrity, in managing investments within the Westbury SIPP by allocating approximately 40% of pension holders' funds to TRG Investments regardless of their risk profile.
Mr Burdett argued he had acted as a non-executive director only, was not responsible for suitability (which he said rested with Westbury), had been misled or scapegoated by Mr and Mrs Whittam, and that any breach was time-barred or, alternatively, that the penalty was disproportionate (paras 21-28, 187).
Mr Goodchild, who did not attend the hearing, argued in written submissions that Westbury owed no regulatory duty of suitability to Synergy's clients, that Westbury had conducted adequate due diligence on TRG, that his conduct was not reckless, that the Authority had misrepresented the level of exposure to TRG Investments, and that the Authority's investigation and enforcement process was procedurally unfair (paras 32-33, 260, 298-300).
Court findings
The Tribunal found that Mr Burdett acted in the capacity of a director of Synergy throughout the Relevant Period, dealing with external counterparties, signing key documents including the Westbury Terms of Business, and being regarded by the governing body as a decision-maker (paras 228-233). He knew that approval was required and knew he had not received it, yet continued to act as a director; this was reckless and therefore lacking integrity (paras 234-255).
The Tribunal found that Mr Burdett knew from the start of the arrangements that approximately 40% of each pension holder's transferred funds would be invested in TRG Investments irrespective of risk profile score, and knew the documentation sent to pension holders (including target asset mix pie charts) was misleading, yet did nothing to prevent this (paras 203-221, 256-259).
As to Mr Goodchild, the Tribunal found that the TRG Investments were obviously high risk, based on expert evidence from Mr Robert Lockie, which the Tribunal preferred over Mr Goodchild's submissions (paras 178-186). The Tribunal found Westbury's due diligence to have been cursory and largely compiled after the event to answer the Authority's questions, rather than conducted properly before investments were made (paras 269-295).
The Tribunal rejected Mr Goodchild's argument that Westbury owed no suitability duty to pension holders, finding that under COBS 9.2.1R Westbury was required to take reasonable steps to ensure that decisions to trade were suitable for pension holders as its clients (paras 302-318). The Tribunal found Mr Goodchild knew or must have known of the risks and named two of the model portfolios 'Global Cautious' and 'Global Balanced' despite knowing this was misleading (paras 319-329). The Tribunal concluded Mr Goodchild acted recklessly and thus without integrity in breach of Statement of Principle 1 (para 334).
The Tribunal rejected various criticisms made by both applicants of the Authority's conduct of its investigation, including complaints about lack of interview, publication of Decision Notices, and alleged 'cherry-picking' of experts, finding these either unfounded on the evidence or outside the Tribunal's jurisdiction (paras 113-138).
Outcome
The Tribunal dismissed the non-disciplinary references relating to the prohibition orders, finding that the Authority's decision to prohibit Mr Burdett and Mr Goodchild from performing any function in relation to any regulated activity was reasonably open to it (paras 337-340, 444).
In relation to the disciplinary references concerning financial penalties, the Tribunal determined that the appropriate action was to impose a financial penalty of £265,071 on Mr Burdett, plus continuing interest on the benefit received by him since the date of his Decision Notice, calculated at the Bank of England's monthly interest rate on sterling deposits (paras 399, 445).
The Tribunal determined that the appropriate penalty for Mr Goodchild remained £47,600, following the Authority's own calculation and cap, notwithstanding that the Tribunal considered this penalty unduly lenient (paras 428-430, 443, 446).
The references were remitted to the Authority with directions that effect be given to the Tribunal's determinations (para 448). The decision was unanimous (para 444).
Major issues / areas of contention
- Whether it was in the interests of justice to proceed with the hearing in Mr Goodchild's absence, given his stated medical reasons for non-attendance and lack of representation.
- Whether Mr Burdett knowingly performed the CF1 (Director) controlled function at Synergy without the Authority's approval, contrary to s63A FSMA 2000.
- Whether Mr Burdett acted without integrity, on the basis of recklessness, in performing his role as a director of Synergy.
- Whether Mr Goodchild acted without integrity, or alternatively failed to act with due skill, care and diligence, in allocating approximately 40% of pension holders' funds to TRG Investments regardless of risk profile.
- Whether Westbury and Mr Goodchild owed a regulatory duty of suitability to pension holders who were clients of Synergy, notwithstanding contractual terms purporting to limit Westbury's responsibility to Synergy as an intermediary.
- Whether the TRG Investments were objectively high risk and unsuitable for pension holders with low and medium risk profiles.
- Whether the Authority's penalty calculation under DEPP 6.5B for Mr Burdett, including disgorgement, seriousness assessment, aggravating factors and deterrence uplift, was appropriate.
- Whether the Authority's penalty calculation for Mr Goodchild, including treatment of certain payments as relevant income, was appropriate, and whether the Tribunal could increase that penalty beyond the amount originally sought by the Authority.
- Whether the Authority's conduct of its investigation, including failure to interview Mr Burdett, publication of the Decision Notices, and instruction of a second expert witness, was procedurally unfair and relevant to the Tribunal's determination.
- Whether the imposition of prohibition orders against Mr Burdett and Mr Goodchild under s56 FSMA 2000 was a reasonable exercise of the Authority's powers.
- Whether the six-year limitation period under s63A(4)-(5) FSMA 2000 barred the Authority from imposing a penalty on Mr Burdett.
- Whether financial hardship justified any reduction in the penalties imposed on either applicant.