The FSA has banned and fined the former managing director of a sub-prime lender £100,000 for providing false and misleading statements about the quality of the company’s loan book.
Between August 2007 and February 2009 John Blake was the managing director at Welcome Financial Services, a subsidiary of sub-prime lender Cattles.
Welcome’s main business was providing low value secured, unsecured and hire purchase loans to sub-prime borrowers at high levels of interest. Welcome accounted for around 90 per cent of Cattles’ revenue.
Welcome’s annual report for 2007 stated that as at 31 December, 2007, around £2.1bn of its £3bn loan book was not in arrears, based on accounts 120 days in arrears. It also stated a pre-tax profit of £130m.
The same information was then published in a Cattles rights issue prospectus in April 2008 which raised £200m.
But Welcome ran a system of calculating arrears which allowed for missed payments to be deferred, which meant days in arrears would be re-started or paused.
The true position was if the correct reporting standards had been followed, £1.5bn of the book was in arrears, compared to the £900m stated. On this basis, Welcome’s actual results were a pre-tax loss of £94.9m, compared to the £130m pre-tax profit stated.
The FSA says if Cattles shareholders were aware the true extent of arrears, they would have been significantly less likely to subscribe to the rights issue.
In its final notice against Blake, the FSA says: “You had a particular responsibility to ensure Welcome was organising and controlling its affairs responsibly and effectively. You were directly involved in these failings.
“In these circumstances, the FSA concludes that you failed to act with integrity in not doing what you as a director should have done.”
Blake referred his case to the Upper Tribunal but later withdrew the reference.
In March the FSA banned and fined Cattles finance director James Corr £400,000 and banned and fined Welcome finance director Peter Miller £200,000 for their roles in publishing misleading information.