Press release

Almost £3m loss to clients adds up to combined 14 years’ disqualification for stockbrokers

David John Gillespie, Managing Director of a stockbroking company, has been disqualified for 8 years for causing Pritchard Stockbrokers Ltd (Pritchards) to both mislead the then Financial Standard Authority (FSA) and to trade in breach of financial rules and regulations regarding the use of client monies.

As a result, losses to clients have been estimated at £2,964,652.

In addition, the company’s Financial Director, David Alan Welsby, has been disqualified for 6 years for allowing Pritchards to both mislead the then FSA and to trade in breach of financial rules and regulations regarding the use of client funds. Both Mr Gillespie and Mr Welsby were also fined and banned, and Pritchards censured, by the FSA’s successor, the Financial Conduct Authority (FCA), on 9 October 2014 for serious failings in relation to the protection of client money.

In Mr Gillespie’s case, for the purpose of the disqualification undertaking, he did not dispute that he also caused or knowingly allowed the company to give unsuitable advice to a client, leading to a £235,000 loss to that client. This regarded an investment in a company, of which Pritchards itself was a shareholder.

The disqualifications, from 3 and 2 December 2015 prevent Mr Gillespie and Mr Welsby respectively, from directly or indirectly becoming involved in the promotion, formation or management of a company for the duration of their disqualification terms.

Commenting on the disqualifications, David Brooks, Group Leader at The Insolvency Service, said:

Although there was no evidence of personal benefit by either Mr Welsby or Mr Gillespie, their actions in such a highly regulated industry, resulted in shortfalls in client funds to continue from at least 2008.

They have asserted that such a breach of the rules was covered by facilities offered by two companies associated with the company’s Company Secretary. However, the evidence filed at court showed that one set of guarantees were not compliant with either the financial regulations, or the company’s own legal advice. The second facility was never formalised in any legal sense.

Regarding Mr Gillespie, he is also responsible for a failure of Pritchards’ duties to a particular client, who has lost a considerable sum as a result of a clear conflict of interests. As an experienced member of the financial services industry he should have taken steps to avoid such a conflict.

Notes to editors

David John Gillespie’s date of birth is 2 December 1948 and he resides in Essex.

David Alan Welsby’s date of birth is 16 October 1957 and he resides in Dorset.

Pritchard Stockbrokers Ltd (CRO No. 02009634) was incorporated on 14 April 1986 and latterly traded from its headquarters at Roddis House, Old Christchurch Road, Bournemouth BH1 1LG. It also provided services through a branch network with agency branches in London, Norwich, Poole, Nottingham, Bristol, Cardiff, Swansea, Woking and Colchester. It traded as a Corporate Member of the London Stock Exchange.

Mr Gillespie was a registered director from 4 October 2000 and Mr Welsby from 11 July 2001. The Company Secretary from 22 July 2009 to 14 February 2012 was Craig Whyte.

The Company went into Special Administration on 9 March 2012 with an estimated deficiency of £3,971,567. On 12 November 2015, the Secretary of State accepted a Disqualification Undertaking from Mr Gillespie, effective from 3 December 2015, for 8 years. The matters of unfitness, which Mr Gillespie did not dispute in the Disqualification Undertaking, were that:

I caused Pritchard Stockbrokers Limited (Pritchards) to mislead the Financial Services Authority (“FSA”) and to trade in breach of the FSA’s rules and regulations. This was at the risk of clients from at least 8 June 2008 in relation to the use of client monies with the consequence that at the date of Special Administration on 9 March 2012 Pritchards had an estimated client cash shortfall of £2,964,652. In particular:

  • The FSA’s rules under Client Assets Sourcebook (“CASS”) 7 require an FSA regulated firm to safeguard client funds. The obligations in CASS include, amongst others, the requirements to ensure, after daily reconciliations, that any shortfall is paid into a client bank account by the close of business, and to notify the FSA without delay if it is unable to comply with this top-up requirement.

  • On 8 June 2008 my co-director and I were aware that Pritchards had a client money shortfall of £142,000 and by 30 June 2008 the shortfall had risen to circa £500,000. However my co-director reported a shortfall of only £73,000 to the FSA on 2 July 2008. No further shortfalls were thereafter notified to the FSA between that date and the date of an FSA visit on 8 February 2012.
  • From about 20 April 2009 Pritchards purported to address the on-going client money shortfall by relying on two guarantees from a third party company in the sums of £846,020 and £250,000. However, the use of guarantees is not permitted by the FSA in relation to the client money requirement nor is it in line with the standard method of calculating the internal client money reconciliation for an investment firm where CASS 7 applies. Further, the use of the guarantee in the sum of £846,020 was only sanctioned by the FSA for the purposes of collateral restrictions on Pritchards’ capital requirements but not in relation to any client money requirement. The guarantee in the sum of £250,000 was not sent to or approved by the FSA.
  • Pritchards’ internal reconciliations showed that on 1 August 2011 the net client money shortfall, in addition to that attributed to the above guarantees, was £1,111,758. From that date to 7 February 2012 Pritchards’ reconciliations showed that the shortfall varied from £360,561 to £2,676,252. At no time in this period was the FSA notified of the shortfall in breach of FSA’s rules.
  • On 10 February 2012 the FSA issued a 1st Supervisory Notice requiring Pritchards to cease regulated activity due to serious concerns that Pritchards had allowed client money to be used on its own account and after the failure to comply with a formal requirement on 9 February 2012 to pay funds into its client accounts to cover a £2,000,000 shortfall.
  • My co-director and I have alleged that in addition to the guarantees referred to above Pritchards also relied on the support of an offshore company in the form of a guarantee in the sum of £2,000,000 to support the client money shortfall. However no legal document was finalised in respect of this alleged support and no documentary evidence has been produced to show that any such agreement was made. No financial support under this alleged guarantee was obtained by Pritchards and the Special Administrators of Pritchards have been unable to pursue this alleged guarantee on the basis that there is no evidence to support it. Further, the Special Administrators have been unable to pursue the guarantees referred to above on the basis of that company having entered into Liquidation in July 2012.
  • As a consequence there is an estimated client cash shortfall of £2,964,652.

I caused or knowingly allowed Pritchards to fail to take reasonable care to ensure the suitability of its advice to a client from 09 to 11 November 2010, leading to a loss of £235,000.

On 11 November 2015, the Secretary of State accepted a Disqualification Undertaking from Mr Welsby, effective from 2 December 2015, for a period of 6 years. The matters of unfitness, which Mr Welsby did not dispute in the Disqualification Undertaking, were that:

I allowed Pritchard Stockbrokers Limited (Pritchards) to mislead the Financial Services Authority (FSA) and to trade in breach of the FSA’s rules and regulations. This was at the risk of clients from at least 8 June 2008 in relation to the use of client monies with the consequence that at the date of Special Administration on 9 March 2012 Pritchards had an estimated client cash shortfall of £2,964,652. In particular:

  • The FSA’s rules under Client Assets Sourcebook (“CASS”) 7 require an FSA regulated firm to safeguard client funds. The obligations in CASS include, amongst others, the requirements to ensure, after daily reconciliations, that any shortfall is paid into a client bank account by the close of business, and to notify the FSA without delay if it is unable to comply with this top-up requirement.

  • On 8 June 2008 my co-director and I were aware that Pritchards had a client money shortfall of £142,000 and by 30 June 2008 the shortfall had risen to circa £500,000. However I reported a shortfall of only £73,000 to the FSA on 2 July 2008. No further shortfalls were thereafter notified to the FSA between that date and the date of an FSA visit on 8 February 2012.

  • From about 20 April 2009 Pritchards purported to address the on-going client money shortfall by relying on two guarantees from a third party company in the sums of £846,020 and £250,000. However, the use of guarantees is not permitted by the FSA in relation to the client money requirement nor is it in line with the standard method of calculating the internal client money reconciliation for an investment firm where CASS 7 applies. Further, the use of the guarantee in the sum of £846,020 was only sanctioned by the FSA for the purposes of collateral restrictions on Pritchards’ capital requirements but not in relation to any client money requirement. The guarantee in the sum of £250,000 was not sent to or approved by the FSA.

  • Pritchards’ internal reconciliations showed that on 1 August 2011 the net client money shortfall, in addition to that attributed to the above guarantees, was £1,111,758. From that date to 7 February 2012 Pritchards’ reconciliations showed that the shortfall varied from £360,561 to £2,676,252. At no time in this period was the FSA notified of the shortfall in breach of FSA’s rules.

  • On 10 February 2012 the FSA issued a 1st Supervisory Notice requiring Pritchards to cease regulated activity due to serious concerns that Pritchards had allowed client money to be used on its own account and after the failure to comply with a formal requirement on 9 February 2012 to pay funds into its client accounts to cover a £2,000,000 shortfall.

  • Pritchards also relied on the support of an offshore company in the form of a guarantee in the sum of £2,000,000 to support the client money shortfall. However no legal document was finalised in respect of this alleged support and no documentary evidence has been produced to show that any such agreement was made. No financial support under this alleged guarantee was obtained by Pritchards and the Special Administrators of Pritchards have been unable to pursue this alleged guarantee on the basis that there is no evidence to support it. Further, the Special Administrators have been unable to pursue the guarantees referred to above on the basis of that company having entered into Liquidation in July 2012.

  • As a consequence there is an estimated client cash shortfall of £2,964,652.

The company which gave the two aforementioned guarantees in the sums of £846,020 and £250,000 was Tixway UK Limited. Tixway UK Limited was wound up by the Court of Session in Edinburgh on 2 July 2012. Notice of Craig Whyte’s disqualification further to his conduct of director of that company has been published. On 1 April 2013 the Financial Services Authority was re-named the Financial Conduct Authority. It has published a notice of its censure of Pritchards, and its fining and banning of both Mr Gillespie and Mr Welsby.

A disqualification order has the effect that without specific permission of a court, a person with a disqualification cannot:

  • act as a director of a company
  • take part, directly or indirectly, in the promotion, formation or management of a company or limited liability partnership
  • be a receiver of a company’s property

In addition that person cannot act as an insolvency practitioner and there are many other restrictions are placed on disqualified directors by other regulations.

Disqualification undertakings are the administrative equivalent of a disqualification order but do not involve court proceedings. Further information on director disqualifications and restrictions is available.

The Insolvency Service administers the insolvency regime, investigating all compulsory liquidations and individual insolvencies (bankruptcies) through the Official Receiver to establish why they became insolvent. It may also use powers under the Companies Act 1985 to conduct confidential fact-finding investigations into the activities of live limited companies in the UK. In addition, the agency authorises and regulates the insolvency profession, deals with disqualification of directors in corporate failures, assesses and pays statutory entitlement to redundancy payments when an employer cannot or will not pay employees, provides banking and investment services for bankruptcy and liquidation estate funds and advises ministers and other government departments on insolvency law and practice.

Further information about the work of the Insolvency Service, and how to complain about financial misconduct, is available.

Mr Gillespie and Mr Welsby have also been sanctioned by the FCA.

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