The FSA has banned and fined a former Pacific Continental Securities (UK) senior broker £30,000 after he watered down risk warnings and disclosed inside information in sales scripts.
Stockbroking firm Pacific Continental went into administration in June 2007 and was declared in default by the Financial Services Compensation Scheme in January 2009. The firm’s collapse triggered a £49m compensation payout funded by the investment intermediary sub-class, the second largest call on the sub-class behind Keydata.
Between January and April 2007, Pacific Continental former senior broker Jay Rutland “significantly watered down” risk warnings contained in sales scripts on four separate occasions.
Rutland sent amended scripts to brokers without the approval of Pacific Continental’s compliance department or one of its directors.
In one of the scripts Rutland referenced an upcoming deal between Alternative Investment Market listed company Provexis and Unilever which had not yet been made public.
The day before the deal was announced on March 29, 2007, Pacific Continental sold £645,000 of Provexis shares, of which Rutland sold £185,000. He earned at least £20,000 commission from the sale of Provexis shares.
The FSA says Rutland was paid a basic salary of £18,000 a year, but his declared earnings for the tax year 2006-2007 were just under £500,000. Most of income was generated by commission on share sales by Rutland and his team.
The regulator says Rutland put his team under pressure to achieve high sales volumes, and imposed sanctions including dismissal where sales targets were not met.
The FSA says: “Rutland deliberately defied compliance procedures, acted against the interests of customers and disclosed inside information in order to improperly maximise sales by his team.”
Rutland originally referred the case to the Upper Tribunal, before later withdrawing the reference.
The FSA wanted to fine Rutland £160,000, but reduced the fine as since the matter was referred to the Tribunal Rutland has been diagnosed with a serious debilitating illness which affects his ability to work.
The regulator censured Pacific Continental in January 2009 for failures relating to the sale of high risk securities to customers. It also banned two former directors of Pacific Continental in December 2010. Pacific Continental would have been fined £2m were it not in insolvent liquidation.