Glasgow broker placed in liquidation but liability unknown
The joint administrators of Glasgow-based broker Direct Sharedeal have said that after taking legal advice they will not be publishing specific details of their investigation or the possibility of the recovery of assets, after they confirmed the firm was to be liquidated.
In their final report to creditors, the administrators from Finn Associates said that liquidation is the most appropriate exit from administration for the firm, which was declared in default by the Financial Services Compensation Scheme on 29 March.
Regulatory Legal, acting for 84 investors in Direct Sharedeal, warned this could add a “significant further redress” to the 2012/2013 FSCS financial year, estimating it to be in the region of £10m.
However, the report makes no mention of how much the total amount of compensation payable could be, simply stating that the administrators have provided the FSCS with a schedule detailing all known claimants along with a draft communication that will update the scheme’s position.
The joint administrators said it is anticipated that this communication will be finalised and issued within the next four weeks.
The final report also confirmed that the FSCS has advised that a maximum payment of £50,000 can be made to an eligible claimant in respect of a valid investment claim against the company.
Upon payment of compensation, the FSCS will take an assignment of the investor’s entire claim in the estate and, where the total is less than £50,000, will hold the claimant’s share of any dividend payment to recover the redress paid.
The FSCS will distribute any dividend on a pro-rata basis to claimants whose losses exceed £50,000, the report said.
The FSCS declined to comment further.
In February 2010, the Financial Services Authority fined Glaswegian firm Direct Sharedeal £101,500 after an appointed representative firm used misleading sales pitches when recommending contract for difference products.
CFDs are derivative products that are designed to allow investors to bet on price movements by providing a return based on the difference between the opening and closing price are a given security or market. If the underlying asset declines in value, investors can lose money.
The products are typically leveraged, meaning that gains - and losses - can be large.
First Colonial Investments, an appointed representative of Direct Sharedeal, was judged by the regulator to have failed to set out inherent risks of buying penny shares.
The FSA said in its final notice that Direct Sharedeal should have ensured the company was providing accurate and sufficient advice on penny sharedealing.