An investment firm has been ordered to cease any activities that would involve releasing client money and to “secure” its books and records for future inspection by the regulator after it admitted two attempts to use client money to pay liabilities despite an existing £1.5m shortfall.
The Financial Conduct Authority has issued a ‘supervisory’ notice against London-based Hartmann Capital Ltd, an authorised investment firm that provides advisory and fund management services, preventing it from carrying on regulated activities and restricting its ability to use and deal in client funds.
According to the notice, Hartmann disclosed to the regulator on 16 December that it was in financial difficulty and that it had a shortfall in its regulatory capital reserve of £1.2m. The company had also admitted it has just £81,000 of ‘corporate capital’, an amount insufficient to meet “short-term expenses”.
In a later communication on 19th December, the firm revealed to the FCA it has a £1.5m shortfall in its client money holding of £25m. Despite this, it said in order to meet short-term costs it was requesting a £100,000 withdrawl from the bank holding these funds.
The watchdog said it had intervened to block this request. It added that in the event of a ‘primary pooling event’, such as the firm entering insolvency procedures, any client money shortfall would be crystallised.
Hartmann subsequently informed the regulator of a decision of its directors, Andrew Fitton, Jeremy Wray, Stavros Loizou and Roderick Collins, to voluntarily enter special administration on 20 December. However, it added two days later that it was prevented from doing so because the chosen insolvency firm said there were too few funds in its “house estate”.
The company later requested the FCA to order compulsory winding up of the firm, before stating that, subject to be being able to provide the requisite funds to its law firm Speechly Bircham, it would seek to apply for winding up itself. According to the watchdog, the firm again proposed to use client money to meet these costs.
The FCA said that it felt there was now no “real prospect” of the client money shortfall being made good and further that Hartmann may, “whether or not in good faith”, allow for further releases from client money accounts.
It has requested that the firm cease entering any further trading contracts and that it extricates itself from any it is already involved in.
Hartmann is also prohibited from dealing in or in any way releasing client funds except to fund any customer trades already entered into and must “secure all books and records and preserve information an systems relating to regulated activities” so that they can be “provided to the [FCA] on request”.
