According to British newspaper The Times, the Financial Conduct Authority (FCA) gave the Feds extra time despite strong indications that Beaufort Securities and its clearing arm Beaufort Asset Clearing Services were insolvent and close to collapse.
Both firms were placed into insolvency on 1 March, following an urgent application by the FCA, but it has since been discovered that this could have been done sooner.
The actions by the UK watchdog likely resulted in clients continuing to transact with Beaufort, putting their money and assets at risk.
The Times has reported that the FCA looked at shutting Beaufort down in December 2017 and were still considering whether to take action the following month.
It decided, however, to delay due to fears that it would expose the FBI’s undercover operation and cause the collapse of a long-running investigation.
Director of enforcement
Mark Steward, director of enforcement and market oversight at the FCA, told The Times that the UK watchdog had been in regular contact with the US authorities but added that the British and American investigations had been separate.
“I won’t go specifically into what we were looking at because our investigations are ongoing, but clearly once we realised we had issues with the same firm we started a dialogue.”
FBI investigation
The US Securities and Exchange Commission (SEC) announced securities fraud charges against Beaufort and its investment manager, Peter Kyriacou on 2 March, in connection with “manipulative trading in the securities of HD View 360 Inc., a US-based microcap issuer”.
It stated that the charges arise, in part, from an undercover operation by the FBI.
The SEC alleges that Beaufort Securities and Kyriacou manipulated the market for HD View’s common stock.
The scheme involved an undercover FBI agent who described his business as manipulating US stocks through a $50m “pump-and-dump” scheme.
Kyriacou and the undercover agent discussed depositing large blocks of microcap stock in Beaufort accounts, driving up the price of the stock through promotions, manipulating the stock’s price and volume through matched trades, and then selling the shares for a large profit.
In the announcement, the SEC acknowledged the assistance is received from a variety of organisations; including the FCA, the FBS, the US Internal Revenue Service and Canada’s Alberta Securities Commission and Ontario Securities Commission.
Beaufort
Beaufort acted as a traditional stockbroker servicing private investors, corporate clients and institutions.
Approximately 14,000 clients have invested in products such as Isas and pensions and the firms hold around £37m of client money and £664m in client assets.
The UK’s Financial Services Compensation Scheme (FSCS) is working with PwC, which has been appointed joint administrators of Beaufort Securities and special administrators of Bueafort Asset Clearing Services, to understand what the insolvency might mean for clients.
