The decision overturns an October 2007 ruling by the Financial Services and Markets Tribunal concerning Leeds-based solicitors Fox Hayes.
In September 2006 the FSA fined Fox Hayes £150,000 for not taken reasonable steps to ensure the promotions were clear, fair and not misleading. The regulator said Fox Hayes had reason to doubt the honesty of the overseas firms.
But the Tribunal ruled that the FSA was wrong to reach these conclusions.
The FSA says the firm approved 34 financial promotions for five unauthorised, unregulated overseas companies between 2003 and 2004. Using the approved promotional material as the first point of contact, the overseas companies were able to illegally sell shares worth about US $14.7m to 670 UK investors.
The Court of Appeal has ruled that Fox Hayes broke FSA rules by approving material that allowed boiler room fraudsters to target UK investors. It also increased the level of penalty imposed by the Tribunal against the solicitors’ firm from £146,000 to £954,770.
The revised penalty includes a £454,770 commission made by former senior partner at Fox Hayes. The final penalty will be determined by the Tribunal at a later date.
In his judgement Lord Justice Longmore said: “In my view, the misconduct which this case revealed was serious. There was a failure (on Fox Hayes’s part) to take reasonable steps to ensure that the promotions by the overseas companies were clear and not misleading. There was also serious doubt that the overseas companies would deal with UK investors in an honest and reliable way.”
FSA director of enforcement Margaret Cole says: “This decision supports our view that firms that assist boiler room operators should be brought to task for their role in perpetrating boiler room fraud and share scams.
“We hope this will send a strong message of deterrence to other firms and individuals that may turn a blind eye to the legitimacy of their clients in exchange for fees or commission.”