UK Regulator Fines Financial Planning Co for Client Money Breaches
Europe, Middle East and Africa
The United Kingdom (UK) Financial Services Authority (FSA) has announced that it has fined financial planning and portfolio management company Christchurch Investment Management Limited (Christchurch) £26,600 and also Christchurch’s compliance officer David Thornberry £11,500 “for failings in relation to the protection of client money”. According to the FSA, “[f]irms must perform daily internal reconciliations of client money balances to ensure that, in the event of insolvency, client money is clearly separate from the firm’s own assets and there are sufficient segregated funds to aid the prompt return of client money”. Christchurch’s failure to comply with FSA rules has been ongoing since November 2007, with the breaches “including failing to put in place adequate trust documentation for any of its 227 client bank accounts”.
Further information from the FSA
FSA’s media release (1 May 2012)
Australian Court Finds Energy Co’s Advertising Misleading
The Australian Competition and Consumer Commission (ACCC) has announced that the Federal Court has found that Energy Watch Pty Ltd’s (Energy Watch) advertising campaign between January and September 2011 was misleading and contravened s.18(1), s.29(1) and s.34 of the Competition and Consumer Act 2010 1974 No. 51 (Cth). The advertising was misleading because Energy Watch “represented in its advertising that it compared the rates of all or many of the energy retailers in a person’s area when in fact the service it provided was to compare the rates of a person’s current energy retailer with those of the energy retailers with which Energy Watch has commercial agreements in place (referred to as its preferred suppliers)”. Other false representations made by Energy Watch included informing residential customers and business customers that it had saved them AU$386 and AU$1,878 respectively in the past 12 months. The ACCC is seeking, inter alia, “declarations, injunctions, corrective advertising, civil penalties and costs”.
ACCC’s media release (1 May 2012)
(Source: ACCC; Lawlex Legislative Alert & Premium Research)
FINRA Sanctions Firms for Selling Leveraged and Inverse Exchange-Traded Funds
The United States (US) Financial Industry Regulatory Authority (FINRA) has announced that it has “sanctioned Citigroup Global Markets, Inc; Morgan Stanley & Co., LLC; UBS Financial Services; and Wells Fargo Advisors, LLC a total of more than $9.1 million for selling leveraged and inverse exchange-traded funds (ETFs) without reasonable supervision and for not having a reasonable basis for recommending the securities”. FINRA executive vice president and chief of enforcement Brad Bennett averred that brokerage firms must ensure that they and their sales force adequately understand leveraged and inverse exchanged-traded products prior to making them available to retail customers. “Firms must conduct reasonable due diligence and ensure that their representatives have an understanding of these products”, said Mr Bennet. According to FINRA, between January 2008 and June 2009, the firms failed to put in place “adequate supervisory systems in place to monitor the sale of leveraged and inverse ETFs, and failed to conduct adequate due diligence regarding the risks and features of the ETFs”, resulting in unsound advice to retail customers.
FINRA’s media release (1 May 2012)
US Trade Commission Wins Judgment Against Scam Marketing Companies
The United States (US) Federal Trade Commission (FTC) has announced that the US District Court in the Central District of California has found John Beck Amazing Profits LLC, John Alexander LLC, Jeff Paul LLC, Family Products LLC and Mentoring of America LLC liable for misleading infomercials regarding “get-rich-quick systems [which] deceived nearly a million customers”. According to the FTC, the misleading infomercials centred on claims including that “consumers could purchase homes at tax sales in their own area for pennies on the dollar and that they could make money easily with little financial investment” and “a typical consumer can easily, quickly, and ‘magically’ earn thousands of dollars per week simply by purchasing and using” the John Beck system. However, of the consumers who purchased the product, less than 1% made a profit. The purchasers were also not informed adequately that they would be enrolled in continuity plans and that money would automatically be charged on their account without their express informed consent. The FTC is seeking “more than [US]$450 million in monetary relief”.
FTC’s media release (1 May 2012)
Italian Confectionary Co Agrees to US$3m Settlement Over Misleading Advertising
Reuters reports that Italian confectionary group Ferrero has agreed to a US$3 million settlement after a US class action was brought against it, based on misleading advertising by Ferrero regarding its chocolate-hazelnut spread Nutella. The class action lawsuit was reportedly bought by Athena Hohenberg, who claimed that “Ferrero was promoting Nutella as something ‘healthier than it actually is’”. According to notices of class action settlements, Ferrero USA Inc will “pay up to $4 for every jar of Nutella bought in California since August 2009, or bought anywhere else in the United States since January 2008″, reports Reuters. Ferrero will also reportedly modify its marketing about the product and “give more prominence to nutrition labels on Nutella jars”, according to a Ferrero spokesperson.
Reuters: Ferrero sets aside $3 million for Nutella U.S. class action (29 April 2012)