The Financial Conduct Authority (FCA) v Anderson & Ors

The court considered an application under section 382 of the Financial Services and Markets Act 2000 for directions about distribution of sums recovered for depositors in three interrelated Ponzi schemes. The judge held that the class of "qualifying persons" should be limited to those who suffered out-of-pocket losses (section 382(8)(b)), and accepted the FCA's prepared schedules of depositors as the starting point. The court directed a simple, rough-and-ready distribution methodology: each depositor may claim the unrecovered capital shown at the time of intervention less interest actually received; claims are to be scaled pro rata where funds are insufficient; recoveries from each trustee in bankruptcy are, in principle, to be applied to that defendant's depositors rather than pooled, subject to issues of fairness and liberty to apply; and a general liberty to apply is to be granted for unresolved disputes.

This was an application by the Financial Conduct Authority for directions under section 382 of the Financial Services and Markets Act 2000 about how sums paid to the Authority under prior restitution orders should be distributed to depositors who suffered loss in interconnected Ponzi schemes operated by the three defendants. Earlier judgments in the proceedings included summary judgment by Lewison J ([2010] EWHC 599 (Ch)) and an assessment of the just sums by Vos J ([2010] EWHC 1547 (Ch)).

The principal issues for decision were:

• who are "qualifying persons" under s.382 and whether the class should include expectation losses as well as out-of-pocket losses;
• whether the recoveries from the three bankrupt defendants should be pooled or applied to each defendant's depositors;
• the practical method for calculating individual claims (capital, interest actually received, possible compensation for time value of money) and the treatment of shortfalls; and
• whether sufficient publicity had been given to ensure potential claimants were informed and whether liberty to apply should be granted for late or disputed claims.

The court reasoned that, given the very large shortfall between losses and recoveries and the practical difficulties of disentangling rolled-over short-term contracts, the fair and proportionate approach was to limit the class to those with out-of-pocket loss (s.382(8)(b)), to accept the FCA's amended schedules as identifying qualifying depositors, to award capital losses recorded at the time of intervention less interest actually received, and to scale claims pro rata where funds are insufficient. The court preferred maintaining the separate identity of each scheme so that each trustee's recoveries are applied primarily to that defendant's depositors, rather than pooling, because each defendant had offered personal guarantees to his depositors and disentanglement was practicable. The court granted a general liberty to apply and required that distributions be finalised without undue delay. The judge emphasised that the scheme must be simple and administrable given the modest recoveries and that precise allocation or retrospective time-value calculations would produce disproportionate cost.

Application allowed in part. The court gave directions under section 382 FMMA 2000 limiting the class of qualifying persons to those who suffered out-of-pocket loss (section 382(8)(b)), accepted the FCA's amended schedules as the starting point, authorised a simple distribution method (capital losses recorded at intervention less interest actually received, with pro rata scaling if funds are insufficient), directed that recoveries of each trustee in bankruptcy be applied to that defendant's depositors in principle (rather than pooling), and granted a general liberty to apply for disputes and late claims; the conclusions were based on proportionality, practicability and fairness in light of substantial shortfalls and evidential limitations.