PART ONE: PEAK PERFORMANCE – ABUSE.
Being an expert – especially one with qualifications and licenses – is a serious, professional responsibility. Experts literally have the power of life or death over the people they advise and serve. Whether the expert is a surgeon, an aircraft designer, an actuary or an accountant, the clients or patients literally put their lives in the hands of people whom they trust.
This blog is going to be in three parts because it will deal with the three phases of what goes wrong when expert professionals betray and abuse those they are supposed to serve diligently and within the boundaries of their professional licenses, standards and codes of practice.
Many times, sadly, I write about unlicensed and unqualified “chiringuitos” or scammers – and the appalling effect they have on their thousands of victims. People lose their life savings and often gain crippling tax liabilities and face financial ruin. Many victims develop life-threatening medical conditions and a few take their own lives. Unsurprisingly, the pond life who cause this widespread devastation exhibit no remorse and when one scam implodes, they seamlessly continue their filthy trade with their next scheme.
In recent months there has at least been some comfort for the victims in the fact that the Serious Fraud Office has announced the investigation of four schemes (Capita Oak; Henley; Westminster and Trafalgar Multi Asset Fund) and this week we learned this has widened to include further schemes.
The vast majority of the perpetrators of these scams are unqualified and unregulated. Although there are a few notable exceptions. With promises of “guaranteed” returns on absurdly high-risk, illiquid, esoteric investments such as car parking spaces, store pods, truffle trees, off-plan holiday properties and forex trading, these transactions were always bound to fail. A few professionals opine that the victims ought to have done their due diligence and establish whether the advisers/introducers/salesmen were qualified and regulated – and whether they had professional indemnity insurance. And of course, the victims did not – as they did not know the questions to ask and even if they had, they would not have understood the answers.
But this blog is not about the flotsam and jetsam of the fringes of the financial services world: the seedy spivs who peddle their toxic wares furtively and hide behind rows of puppet directors. It is about the practising, licensed, qualified professionals who abuse the trust which their clients place in them.
While there is obviously a very serious – and indeed profoundly sinister – message behind this blog, I am going to kick it off with something far more light-hearted:
In this famous sketch, a man walks into a clinic because he wants to have an argument. However, he is misdirected and ends up in the abuse room. This was, of course, an entirely innocent mistake as he was not deliberately mis-sold abuse instead of an argument. And, further, neither a five-minute dose of insults nor a series of pointless, repetitive contradictions was likely to be a life-changing event. However, had this been a deliberate and conscious attempt to mislead and take advantage of the client for financial gain, it would have been fraud.
When we have finished having a hearty chuckle at the genius of John Cleese and his crew, we can get on with examining what constitutes financial abuse; argue about where the responsibility and accountability lie; report the culpable party for negligence and/or fraud. Or not, as the case may be. The argument stage, of course, is the most important bit as it establishes how the abuse happened, quantifies the damage caused by the abuse, and discusses/identifies what the remedy ought to be.
There are a number of victims of the Peak Performance scheme. Some have lost a few hundred thousand in investments and non-recourse loans, while others have lost millions. In a nutshell, victims were sold “investment opportunities” which resulted in reductions in tax liabilities. Or rather, the arrangement purported to offer investments which came packaged with tax mitigation (avoidance).
The first element of the abuse was that investment advice – which should only be carried out by a qualified and licensed adviser – was provided by an unqualified and non-licensed adviser. There is a clear, regulator-specified process which defines the steps which should be taken in order to establish an investor’s risk profile and individual circumstances/goals. What should most definitely not happen is that an adviser identifies an investment opportunity which will make him personally a fat commission – and then promotes it to his clients irrespective of whether it is a suitable investment for them or not. Regulations are there specifically to prevent that sort of abuse.
However, the advisers in the Peak Performance scheme, were not IFAs but accountants. And none of them was qualified or licensed to provide investment advice. Peak Performance – run by Roy Lyness and his sidekick Lee Radley – has been notorious for many years for talking victims – such as comedian Jimmy Carr and well over a thousand other high net worth individuals – into taking part in his imaginative tax avoidance schemes. As fast as HMRC successfully challenges one of Lyness’ schemes, another one pops up like a virus. Part of the problem, is that the tax penalties fall upon the victims and not the perpetrators.
In 2010, Lyness and his associate Lee Radley, started promoting “Peak Performance” – an allegedly tax-efficient investment scheme which was sold to victims by a network of accountants on the basis that it was an opportunity for “healthy” investment returns and accompanying substantial reductions in tax liabilities. What the clients did not realise was that the £ millions they handed over to their trusted accountants in the Peak Performance network, were not investments and loans to bona fide trading companies at all, but a series of shell companies with no genuine prospect of ever trading. Most of these companies were in some way owned and/or directed by the same people such as , Sean Michael O’Connor (director of at least 26 companies – most of which are dissolved), Peter Hindle-Marsh (director of at least 22 companies – most of which are dissolved) and Rupert Jonathan Symons (director of at least 82 companies – most of which are dissolved).
Eventually, HMRC had the drains up on the Peak Performance scheme and decided it in no way qualified as a genuine investment scheme – and sent out demands for tax. Some of these were Accelerated Payment Notices (against which there is no appeal) and some were Protected Assessments which can be appealed.
Some of the victims were pursuaded to take out loans to bulk up their shareholdings in the companies and increase the amount of the tax relief they could claim. Their accountants told them this was perfectly “normal” and would be acceptable to HMRC. HMRC did not agree.
The accountants who took part in the Peak Performance “network”, were promoting investments (sometimes loans) to their clients without being licensed to do so. These accountants were also “double dipping” – i.e. charging an undisclosed investment introduction fee of 10% and also charging the victims a further 3.5% of the GROSS amount invested (including the loans) which was actually 17.5% of the amounted invested in cash. Plus VAT. The invoices to the victims quoted: for “professional services and tax advice”. Therefore, 33% was coming off the victims’ supposed “investments” right from the start.
The very high-risk nature of the investments should have been easy to spot. In fact, many of the companies had the same director: Rupert Jonathan Symons. A quick look on Companies House should have told these accountants all they needed to know about Symons’ entrepreneurial track record and the risk that he and his companies posed to investors.
When news spread that Symons had been arrested and that much of the money invested in the various companies had been stripped out by him, the accountants advised the victims to claim full tax relief on their investment losses – including the leveraged part of their share purchases funded by loans.
One of these accountants was based in Oxford and boasted that the firm’s vision was: “To be a clear leader in the community with an excellent reputation for client care and for employing the best people”. The accountant who gave the investment and tax advice (and charged 7% plus VAT for it) to two of the victims was the firm’s Head of Personal Tax.
Even after one victim was issued with a Protective Assessment by HMRC, this accountant advised him to make further tax loss claims and also to make further investments. He persuaded another victim to sign a self-declaration of high net worth, even though he knew perfectly well the victim did not qualify as such.
We now come to the argument about the abuse. And here we may well learn a thing or two from John Cleese. When confronted with the unchallengeable, challenge it; when faced with the facts, deny them; when caught red handed, blame it on someone else (usually the victim). And when all else fails, clam up like a sulky child.
I will tell you exactly how the argument will go to start with:
Me: Who gave the investment advice?
Him: Our firm was not contracted to provide investment advice in this case and no entity or employee or partner provided investment advice in this case and no payment was received in respect of the provision of investment advice in this case.
Me: So who did give the investment advice?
Him: See above.
Me: So why did you charge one victim £4,375 plus VAT for his investment in Nyxx Technologies?
Him: That was for professional services and tax advice.
Me: And did you also charge a further £12,500 plus VAT for the investment introduction?
Me: So how did the victim come across Nyxx Technologies?
Him: I introduced the investment opportunity to him.
Me: And how/why did he decide to invest in this company?
Him: That was a matter for him. He could have taken independent investment advice if he had wanted to.
Me: So you didn’t influence him in his investment decision either way?
Me: And did you ask him to self-certify that he was a High-Net-Worth investor?
Me: And did he qualify as a high net worth investor?
Him: No. But it was up to him to claim to be a HNW investor or not.
Me: Why didn’t you advise the victim NOT to invest in Nyxx Technologies? One of the directors was Rupert Jonathan Symons who had a string of failed companies to his name. Another director, Jamsheed Motafram, had another string of failures and a third director, Linda Lorraine Neiderlag, also had a string of failed companies.
Him: Sullen silence.
Me: Did you advise the victim to claim tax loss relief against the failed investment?
Me: And how did the tax loss relief arise?
Him: From the failed investment which I did not advise him to make.
The accountant did – despite his protestations – provide investment advice. The victim had never heard of Nyxx Technologies before and certainly did not come up with the company independently of his accountant. Nyxx was offered as an investment “opportunity” and that constitutes advice on the part of the accountant. The firm was not licensed by the FCA for investment advice and indeed the accountant (Him) was not qualified to give investment advice. As an accountant, he should have advised the victim (who did not qualify as a HNW investor) against making such a high-risk investment. The three directors of Nyxx had established track records of failed companies.
As “Head of Personal Tax”, this accountant should have known there was a danger that HMRC would have taken the view that this transaction was not a bona fide investment in a genuine trading company and that any tax loss relief claim would be challenged. He ought to have known what the high risks of this happening were, and should have advised the victim accordingly. But he did not.
Finally, the accountant was “double dipping” (charging a commission at both ends of the transaction) and concealed this from the victims.
There are two ways to resolve this matter: the easy way or the hard way. The accountant and the firm can emerge from this as either the honourable heroes (who put the matter right) or the deceitful and fraudulent villains who get reported to the ICAEW, the FCA and the Serious Fraud Office.
Part Two – The Argument – will report how this exchange goes and how honestly/honourably the accountant behaves over the next few days.