Investments  

Judge criticises former adviser's due diligence

Judge criticises former adviser's due diligence

A judge has ruled two companies which marketed and sold carbon credits, rare earth metals and storage pods should be wound up.

Judge Robin Dicker was critical of the due diligence carried out by Caledonian Ltd and Caledonian Commodities, saying their business was conducted in a way which did not meet “minimum standards of commercial business”.

Caledonian's sales manager was Roy Seeballuck, a former investment adviser who worked with Square Mile Securities Ltd and AX Markets Ltd, while Kashif Seeballuck, who was a trainee investment adviser with AX Markets Ltd, was also involved with the firm.

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The Department for Business, Energy & Industrial Strategy had presented two petitions seeking to have the companies wound up in the public interest.

The petition alleged Caledonian, among other things, sold objectionable products as investments, used marketing material that was misleading and charged inflated commissions.

But Caledonian, while accepting that in hindsight it did sell some objectionable products, denied that it did so with a lack of commercial probity, saying all such trading ceased before the investigators were appointed and that it cooperated with them “in a transparent and forthright manner”.

It also said its trading in respect of precious metals and storage pods was conducted in a way that was commercially legitimate and proper.

In respect of its marketing and selling of carbon credits, which it did through an online platform hosted by Carbon Neutral Investments Ltd, Mr Dicker raised concerns about the company’s due diligence.

He said: “Such due diligence as was carried out was, in my view, wholly inadequate. 

“It appears to have consisted in reliance on the fact that CNI was FSA registered, obtaining copies of CNI's accounts and details of its directors, reading some marketing materials and carrying out a Google search.

“Such steps were insufficient to enable the companies to understand the product that they were selling and to satisfy themselves that carbon credits could properly be regarded as an investment, even if a speculative one, which would provide investors with the potential for capital growth and the ability to realise their investment.”

Mr Seeballuck said that while he regretted the sale of carbon credits, the company’s actions show it acted with commercial probity.

He said he was naïve because he was new to alternative investments and said the companies attempted to contact their clients who purchased carbon credits and make recompense.

In relation to the marketing and sale of rare earth metals, Mr Dicker said: “The companies made statements to investors about the likely benefits of investing in rare earth metals and the level of returns that they might reasonably anticipate to receive. 

“The various statements by investors record, for example, one investor being told that returns in the region of 30 per cent over a five-year period could be made and that the companies could sell their investment when they wanted to realise it.