Mr. Paul Prew-Smith has been involved in promoting HYIP schemes for several years. He worked with Trevor Prider (see Black List) when Prider was in California operating as Trade Direct.
A recent court decision described an earlier investment program promoted by Mr. Prew-Smith. Mr. Prew-Smith was involved in a real estate scheme in the 1980s and early 1990s in which elderly homeowners were encouraged to borrow against the equity in their homes, and invest the proceeds in certain fixed income securities. This was called a Home Income Plan. The target market was elderly property owners who had built up substantial equity in their homes over the years.
His firm, Fisher Prew-Smith (“FPS”), worked in conjunction with the West Bromwich Building Society (“WBBS”), which granted the loans secured by mortgages against the elderly homeowners’ properties.
The plan would work in a time of rapidly increasing property values, but was risky at a time of stable or even moderately increasing values. Unfortunately, during this time property values actually fell. The elderly clients ended up losing significant amounts of money under the plan.
On December 1993, Mr. Prew-Smith was disqualified from acting as a director of companies for seven (7) years by order of the High Court.
Questions arose about FPS and the representations it had made to the elderly clients. A number of the homeowners challenged FPS and WBBS in court.
After hearing evidence, the Court stated:
It was the uncontroverted evidence of each of the Individual Claimants that, in the course of their initial meetings with FPS' sales representatives, they received positive assurances such as that the Schemes were "completely safe", "a sure-fire winner", "would make them financially secure for the rest of their lives" and that there was no chance that they would lose their homes. Each of them gave evidence that they placed reliance on these assurances in entering into Home Income Plans. WBBS did not answer this evidence.
Notwithstanding these representations, the elderly clients lost money in the end. The Financial Intermediaries Managers Brokers Regulatory Association (“FIMBRA”), an organization similar to today’s FSA, also investigated the matter.
The Court described the outcome of the FIMBRA proceeding:
As already noted, on 21st March, 1991 FIMBRA's disciplinary committee found proved ten of the twelve charges brought against FPS for breaches of its Rules, including a charge that it "failed to take reasonable steps to ensure that clients had understood the extent to which they would be exposed to risk or further liability by entering into retirement income schemes", although they found a charge of failure "to provide to clients 'best advice'" not to have been proved. The disciplinary committee ordered that FPS distribute on a pro rata basis, to all its clients whose investments were transferred to the Ruben Walter Retirement and Growth Account, the sum of £335,809 and that FPS pay a fine of £20,000 in respect of the charge of failing to warn of risks and two further charges found proved namely failure to comply with Rule 2.1.3 "in that persons employed by the member were allowed to conduct investment business without first being registered as registered individuals of the member;" and failure to comply with Rule 6.1.4 namely "to provide warnings on advertising material in the form prescribed by this Rule .......". Although FPS had the right to appeal against these findings and the order it did not do so.
The Court held that FPS violated its duty to the elderly clients by making negligent misrepresentations and using undue influence.
Investors Compensation Scheme v. West Bromwich Building Society, et al., High Court of Justice (Chancery Div.), Case No. WL 42/98 (decision of Mr. Justice Evans-Lombe filed Jan. 15, 1999).
Edited by: Diligizer at: 9/11/02 10:09:16 pm