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Lighthouse forced to pay redress on £55k carbon trading investment

Lighthouse has been forced to pay redress on a £55,000 investment in a carbon trading partnership that was deemed unsuitable by the Financial Ombudsman Service. 

A judgement published yesterday from Ombudsman Raj Varadarajan says Lighthouse had made a product recommendation and must repair the client to the state they would have been in had they not made the investment.

Lighthouse argued that the firm acted as an introducer and that it was clear the firm was not offering advice.

In addition, Lighthouse said the complaint was time barred as it was made more than six years after the alleged advice in March 2005.

The adviser involved also gave a statement claiming there was no advice given and that they suggested the client would need to speak to the carbon credit investment operator directly.

The Ombudsman dismissed the argument the complaint was time barred. It adjudged that advice had been given because the adviser compared the carbon investment to previous investments in film schemes made by the client and suggested that carbon credits investment would help provide funds to cover tax claw backs on the film partnerships.

The client made the investment using £55,000 in borrowed funds. The Ombudsman ruled that it was not suitable for the client to invest in further UCIS with borrowed funds.

It added that the investments are illiquid and that there is dispute over what the underlying investments are. It says the client’s investment does not appear to have any intrinsic value.

It has instructed Lighthouse to reimburse payments the client made to the lender of the invested money plus 8 per cent interest and clear any outstanding loan amount.

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Comments

There are 4 comments at the moment, we would love to hear your opinion too.

  1. Gordon Sinclair 1st May 2014 at 9:13 am

    This story smacks of the current culture in financial services i.e. there is no such thing as investment loss any more – just go to FOS and they will fix it.

    Given that the client had a history of film scheme investments I would imagine that they would fall under the “Sophisticated Investor” category so should have had half a clue as to what they were doing!

  2. Patrick Schan 1st May 2014 at 9:25 am

    I, too, feel that this sounds like a sophisticated investor and that, once a loss was made, they were savvy enough to know that they were in a ‘can’t lose’ situation in trying it on with the ombudsman. And what more would anybody expect, of this ombudsman service, than to find against the adviser.

  3. Joseph Egerton 1st May 2014 at 9:54 am

    If you want to rely on a claim that an investor is a sophisticated investor (or HNW) you MUST have the prescribed forms properly completed. There is no suggestion that Lighthouse did this. It is of course possible to argue that an investor understood certain risks or characteristics of products, but that is quite different from asserting that FOS has no locus because somebody was a certified sophisticated investor or a High Net Worth Individual.

  4. I’m not normally an apologist for FOS (far from it), however the full 8 page adjudication suggests that they have reached an appropriate decision in this case. It would certainly appear that the firm stepped beyond being an introducer for the product. As for the “Sophisticated Investor” argument, I’m not sure that people would be quite as quick to take this view after reading the judgement.

    I also note that the same Ombudsman has rejected a similar complaint against the company in the case of another investor who was a “sophisticated investor” despite identifying flaws in the sales process.

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