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Several years ago I was approached by a City firm, and encouraged to buy their recommended offerings. These were smaller risky shares in commodities sectors, and I was told I could make substantial gains, with a possibility of a loss. The shares were all listed on a junior stock exchange — the ISDX growth market — and have all fallen substantially in value. Was I conned, and if so, how would I prove this to a regulator or any other body I may be able to complain to? Or am I just stuck with these bad investments?
The ISDX growth market is an lesser-known exchange listing small and medium sized companies, says Harry Rose, Money editor at consumer group Which?. It used to be called the Plus market, before being sold and renamed.
Most of the listed shares are not household names, and can be high-risk and illiquid. Such investments may be difficult to sell because, unlike on the main stock exchange where trading volumes are usually huge, it is not always possible to match sellers with buyers. If there is a lack of demand for a share, prices will be lowered and you are likely to see large spreads between the bid (or sell) price and the offer (or buy) price.
The circumstances in which you bought your shares will be critical in determining whether you were mis-sold. Most mainstream stockbrokers now offer share dealing on a purely “execution only” basis, meaning they facilitate your deals without offering advice. I’m assuming you didn’t buy your shares through this sort of service, but if you did you’re unlikely to have a mis-selling case.
There are two types of firm that might advise you to buy shares. The first is the discretionary or advisory stockbroker — think pinstriped City gents of the old-school. The second is the boiler-room scammer — think Wolf of Wall Street. Ironically, your best chance for receiving redress will be if it was a legitimate, regulated firm that you bought from, but only if you can prove that it gave you advice that wasn’t appropriate.
When you say the broker “recommended” the shares, did staff do so after considering your attitude to risk and explaining why the shares were appropriate? If so, the broker will argue it has no complaint to answer. Shares go down as well as up. Poor investment performance is never grounds for a valid complaint.
However, if the firm did not explain the risks clearly or assess how much risk you were comfortable with, you may have a case. If you think you might, you should write a formal letter of complaint to the broker in the first instance. Your argument should be that the shares were not suitable for you, not that they have gone down in value. If your complaint is rejected by the firm, you can escalate it to the Financial Ombudsman Service.
This is the UK’s official body for adjudicating on disputes with financial companies, including investment brokers, once you have complained directly to the company. You can lodge your complaint online at www.financial-ombudsman.org.uk/consumer/complaints, where you will need to complete a three page form. If you would like some help with getting started you can call their free helpline where an adviser will talk you through everything you need to know.
The FOS will assign an adjudicator to review your case in full and decide whether you were mis-sold these investments. This can take a couple of months.
Boiler rooms are offices whereby many operators engage in high-pressure sales pitches to sell various schemes and investments which promise high returns and sound too good to be true, add Tobias Haynes and Gareth Fatchett of Waterside Legal.
They often make references to being “City” or “FX” or “stockbrokers, using financial services jargon.
If you fall victim to a boiler room scam, recompense is unlikely. You probably won’t be able to track the fraudster, and even if you did, it is unlikely you could realistically pursue them.
There is a glimmer of hope if you made any payment to the fraudster by credit card. Under Section 75 of the Consumer Credit Act 1974 you could potentially make a claim to your credit card provider. For this to apply you must have paid no less than £100 and not more than £30,000. It applies even if you paid part cash and part by card.
The main bodies who will look into complaints of this nature are the Financial Conduct Authority and Action Fraud. While they may be able to get money back for you, it is highly unlikely. These bodies’ roles are more punitive than compensatory.
If there was any regulated intermediary in the transaction, you may be able to make a complaint to the Financial Services Compensation Scheme or the Financial Ombudsman Service, which are free-to-use, informal and consumer-friendly services.
It is unlikely a lawyer will be of any use to you, for the reasons above. However, some may consider taking your case under a “no win no fee” agreement if they think you are likely to recover anything. Shop around — most lawyers offer an initial consultation at no costs, and you can get an idea of likely costs that way.
Great caution should be taken when you receive an unsolicited call. Reputable firms are upfront and transparent. They have no need to cold-call, and will market themselves in more positive ways.
The opinions in this column are intended for general information purposes only and should not be used as a substitute for professional advice. The Financial Times Ltd and the authors are not responsible for any direct or indirect result arising from any reliance placed on replies, including any loss, and exclude liability to the full extent permitted by law.