Financial Services Authority v Anderson

The High Court upheld summary findings that each defendant had carried on a regulated activity without authorisation in breach of section 19 of the Financial Services and Markets Act 2000 (FSMA), the regulated activity being accepting deposits within the meaning of article 5 of the RAO. The court exercised its restitution power under section 382 FSMA and assessed the "just sums" payable by each defendant as the aggregate of (a) losses to depositors (capital and modest contractual interest outstanding at the date of FSA intervention) with interest at 6% from the intervention date to judgment, and (b) profits appearing to have accrued to the defendants, with interest to judgment.

The court ruled that deposits from "close relatives" as defined in article 3 and excluded by article 6(1)(d) of the RAO could not be treated as losses or be included for distribution under section 382, and accordingly excluded those amounts from the s.382 assessment. The court declined to make remedial orders under section 380(2) FSMA because such orders would be impractical, instead making quantified restitution orders under section 382(2).

Background and nature of the proceedings. The Financial Services Authority brought enforcement proceedings against three individuals (Anderson, Peacock and Pruthi) for carrying on regulated activity without authorisation in contravention of section 19 FSMA by accepting deposits under arrangements described in article 5 of the RAO. Lewison J had previously granted summary judgment on liability and referred the quantum issues under sections 380 and 382 FSMA for trial. The FSA sought assessment of the "just sums" payable under section 382(2); it did not press for practical remedial steps under section 380(2).

Facts and scheme. The defendants operated short-term, high-rate deposit arrangements (trading names: Business Consulting International, John Anderson Consulting, Ken Peacock Consulting). Deposits were accepted in sterling, euro and dollars with very high monthly contractual interest rates. The arrangements involved rollovers and apparent funding by onward lending; evidence suggested inadequate underlying lending and, at least in part, payment of interest from new deposits. The FSA intervened on 25 November 2008 and obtained freezing and prohibitory orders.

Issues for decision. The court identified the remaining issues as: (1) the correct approach to measuring losses and adverse effects under section 382(2) (including interest); (2) whether deposits by "close relatives" exempt under article 6(1)(d) RAO could be included in a restitution order; (3) the quantification of losses and profits for each defendant; and (4) the "just sums" to be ordered under section 382(2).

Reasoning and conclusions.

• The court adopted the position that losses should be measured by the outstanding capital and modest contractual interest on open deposit contracts at the date of intervention (25 November 2008), with contractual anomalies and late payments adjusted where shown. Interest on those losses was ordered at 6% per annum (the statutory account rate) from the intervention date to judgment, the defendants' arguments that delay or the criminal investigation should reduce the period being rejected.
• The court held that the RAO exemption for sums paid by a "close relative" (article 6(1)(d), read with article 3) removed those sums from the definition of "deposit" in article 5, so deposits from close relatives of a defendant could not form part of a section 382 assessment or distribution. Relatives by marriage did not fall within the exemption unless the RAO expressly covered them.
• The court accepted adjusted loss figures largely agreed or established at trial and assessed profits for Anderson and Peacock on the basis of taxable receipts and reasoned extrapolation for the relevant periods, assessing no profits for Pruthi. The court added interest on profits from the intervention date to judgment.
• Weighing statutory purpose (consumer protection and deterrence) and the defendants' culpability, the court ordered restitution under section 382(2) equal to the total of losses and assessed profits (with interest). The court declined to order remedial steps under section 380(2) as impractical.

Remedy awarded. The court determined the precise sterling, euro and dollar sums each defendant must pay to the FSA and directed that distribution to qualifying persons under section 382(3) would be the subject of subsequent directions after recovery.

The claim succeeded. The court assessed and ordered quantified restitution sums under section 382(2) FSMA against each defendant (losses plus assessed profits, with interest to judgment), excluded deposits by close relatives from the assessment under article 6(1)(d) RAO, and declined to make remedial orders under section 380(2) because they were impractical. The orders reflect the statutory purposes of consumer protection and deterrence and the defendants' culpability.