Financial Services Authority v Bayshore Nominees Ltd & Ors

The Financial Services Authority brought enforcement proceedings under the Financial Services and Markets Act 2000 and the Regulated Activities Order 2001 alleging that the defendants operated a "boiler room" scheme in which shares were promoted to investors and payments routed through Bayshore. The court was asked to approve consent orders in respect of the first three defendants and to determine the case against the fourth and fifth defendants who did not appear.

The judge found that the evidence established contraventions including arranging investments contrary to Article 25 RAO and section 19 FSMA, safeguarding and administering assets contrary to Article 40 RAO and section 19 FSMA, and that the fourth and fifth defendants carried out advising and communicating invitations in breach of Article 53 RAO and section 21 FSMA. The court addressed and rejected a jurisdictional objection as to whether advice given by telephone from abroad fell within RAO 53, concluding that the prohibition covers advice received in the United Kingdom because the act of advising is not complete until receipt.

The court gave approval to the consent orders for the first three defendants subject to minor drafting changes and indicated it would hear further submissions as to the form of relief against the fourth and fifth defendants.

Background and parties: The Financial Services Authority (FSA) brought this action against five defendants: Bayshore Nominees Limited, Mr Manji, Mr Bhowan, a person or persons trading as Enterprise Analytics Incorporated and a person or persons trading as Gatemore Securities. The FSA alleged a scheme of "boiler room" activity promoting shares (including in Sim4Travel) to investors in the United Kingdom.

Nature of the application: The FSA sought enforcement relief for alleged unauthorised regulated activities under the Financial Services and Markets Act 2000 (FSMA) and the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (RAO). Two consent orders had been agreed with the first three defendants and required the court's approval. The fourth and fifth defendants did not appear and the proceedings continued against them in their absence.

Issues framed:

• Whether the factual evidence established that the defendants carried on regulated activities without authorisation (in particular: arranging deals (Article 25 RAO/section 19 FSMA); safeguarding and administering assets (Article 40 RAO/section 19 FSMA); advising (Article 53 RAO/section 19 FSMA) and communicating invitations or inducements (section 21 FSMA)).
• Whether advice given by telephone from persons located abroad to investors in the United Kingdom falls within the prohibition in Article 53 RAO.

Evidence and procedure: The trial lasted less than a day because of the compromise with the first three defendants. The judge received oral evidence from two investors and other witness evidence, and permitted hearsay evidence by notice. The evidence identified named individuals operating under or for Enterprise Analytics and Gatemore and established the operational roles of Bayshore, Mr Manji and Mr Bhowan.

Reasoning and conclusions: The judge concluded that the evidence established the FSA's allegations under the stated heads. On the jurisdictional issue, the judge adopted a purposive approach: the prohibition in Article 53 must cover advice given to investors in the United Kingdom even if the adviser is abroad, because the act of advising is only completed on receipt; the exclusion for advice by an overseas person as the result of a legitimate approach further indicated that overseas persons fall within the provision's ambit. For these reasons the objection that advice from abroad fell outside RAO 53 was rejected. The court approved the consent orders in respect of the first three defendants subject to minor drafting amendments and found that the case against the fourth and fifth defendants was properly made out, with relief to be determined after further submissions.

Procedural note: The fourth and fifth defendants were sued in their absence in the manner described in Bloomsbury Publishing Group and Another v News Group Newspapers Limited [2003] EWHC 1205; they did not appear and the action proceeded against them in their absence.

The court approved the consent orders disposing of the claims against the first three defendants subject to minor drafting changes and found, in the absence of the fourth and fifth defendants, that the FSA had established the alleged contraventions. The judge held that Article 53 RAO covers advice received in the United Kingdom even if given by telephone from abroad, because the act of advising is complete on receipt and the statutory scheme must be interpreted purposively to prevent evasion of the prohibition.