Independent financial advisors who referred their clients to brokerage CFD company Direct Sharedeal have been caught in the middle of a controversy after the company was put into administration.
Direct Sharedeal’s dealings in contracts for differences has been the subject of at least 60 claims at the ‘Financial Ombudsman Service’ which will now revert to the UK Financial Services Compensation Scheme after the firm has been put into administration.
Apparently, the bulk of the Glasgow-based stock broking company was referred through by financial advisers who were directed to invest in its high-risk CFD investments. Some of the investors lost as much as 98% of their money in CFD trading and are now claiming that Direct Sharedeal failed to properly evaluate their attitude to risk or carry out any suitability checks to confirm such speculative investments were appropriate for them.
However, Direct Sharedeal is insisting that judging suitability was partly the responsibility of the clients’ financial advisers. A spokesman for the company noted: ‘We rely on the intermediaries to ensure that the clients are suitable for our high risk product; in turn we do carry out our suitability checks when we receive the application forms before agreeing to open their accounts.’ Direct Sharedeal in particular pointed out that it made presentations to investors directly by request of their appointed financial advisor and in their presence.
Regulatory Legal, a law firm which is acting on behalf of investors who invested in CFDs prior to Direct Sharedeal’s insolvency has however denied this. A spokesman from the law firm noted: ‘The regulated activity in managing the account is undertaken by Direct Sharedeal. It is therefore obligated under the FSMA 2000 regime’. The investors dealt directly with Direct Sharedeal, therefore Direct Sharedeal had the regulatory duties to assess suitability and to manage the accounts.
The law firm is also claiming that Direct Sharedeal didn’t manage investors’ accounts with expertise and diligence, within the agreed parameters, or to operate the agreed stop/loss facilities of the accounts. In addition Direct Sharedeal failed to keep investors informed on the progress of their account in line with its obligations, meaning some investors were not aware of the accumulating losses. One legal advisor acting on behalf of investors who are seeking compensation also noted that whilst Direct Sharedeal’s online terms and conditions state at one point that the firm’s management of the client’s trading account is entirely discretionary, at another point it clearly implies that Direct Sharedeal were aware and expected that the introducer intermediary would communicate product literature to the prospective client – and that would include a Powerpoint presentation at the heart of which was the assurance that Direct Sharedeal would operate a 5% stop-loss. ‘No such stop-loss appears ever to have been applied’. Apparently, some of the investors have been waiting for the funds for up to 8 months – these clients are now being treated by the administrator (Finn Associates) as creditors.
This is not the first time that Direct Sharedeal has hit the spotlight with the FSA. In February 2011 the firm was reportedly fined £101,500 after its appointed representative, First Colonial Investments LLP, used misleading sales tactics which failed to highlight the inherent risks of buying penny shares. In 2008, Direct Sharedeal was taken over by secretive former non-executive director Roland Witton. Singapore-based Witton became the majority shareholder after buying tranches of securities from original founders Gordon Perry, who has remained a non-executive director, Andrew Palfremen, former finance director Malcolm McNiven, and former market-maker Enrico Eusebi. Direct Sharedeal meanwhile declined to comment.