Financial Services Authority v Sinaloa Gold Plc and 2 Others

JurisdictionEngland & Wales
JudgeJudge Hodge
Judgment Date25 January 2011
Neutral Citation[2011] EWHC 144 (Ch)
Docket NumberCase No: HC10C04532
CourtChancery Division
Date25 January 2011

[2011] EWHC 144 (Ch)

IN THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

Royal Courts of Justice

Strand

London

WC2A 2LL

Before:

His Honour Judge Hodge QC

Sitting as a Judge of the High Court

Case No: HC10C04532

Between:
Financial Services Authority
and
Sinaloa Gold Plc and 2 Others

Mr Nicholas Vineall QC and MR JAMES PURCHAS appeared on behalf of the Claimant

Mr James Dingemans QC and MR TOM POOLE appeared on behalf of Sinaloa Gold PLC and Mr Hoover

Miss Tamara Oppenheimer appeared on behalf of Barclays Bank PLC, intervening

Judge Hodge QC:

1

This extemporary judgment is divided into seven sections as follows: (1) The proceedings. (2) The assertion of a boiler-room fraud or share-sale scam. (3) A serious issue to be tried. (4) A risk of dissipation. (5) The amount of the freezing order, if any. (6) A cross-undertaking in damages in favour of the respondents. (7) A cross-undertaking in damages in favour of third parties, including (and notably) Barclays Bank plc ( Barclays).

2

As acknowledged by the claimant, the Financial Services Authority ( the FSA), this case raises an interesting point, potentially of wide application, relevant to all FSA injunctions, and of potential relevance to many injunctions sought by other regulators or public enforcement authorities. It concerns the extent of the undertakings to be given by the FSA in Schedule B to the proposed freezing injunction.

1

The Proceedings

3

This is the adjourned hearing of an application by the FSA to continue interim injunctive relief which was first granted against the three defendants on a without-notice hearing which took place before Mr Kevin Prosser QC, sitting as a Deputy Judge of the Chancery Division, on 17 th December 2010. That interim injunctive relief was continued, with modifications, by Mr Justice David Richards on the original return date on 31 st December 2010. The FSA's case is that the defendants have been involved, albeit in different capacities, in a scheme which they say was designed to persuade private individual investors within the United Kingdom to subscribe for penny-shares in the first defendant, Sinaloa Gold plc ( Sinaloa), a UK company, at prices of between 62 pence and 91.5 pence per share. The FSA contends, in connection with that scheme, first, that persons carrying on business as PH Capital Invest ( PH) have carried on activities which are regulated activities under the Financial Services and Markets Act 2000 ( the FSMA) in contravention of the general prohibition in Section 19, and have also communicated invitations to engage in investment activity in contravention of Section 21 of the FSMA. Secondly, that the first defendant, Sinaloa, is in breach of Section 85 of the FSMA by offering shares to the public in the United Kingdom without any approved prospectus, and, further, has communicated directly, and through PH, invitations to engage in investment activity in contravention of Section 21 of the FSMA, and is also knowingly concerned in PH's contraventions. Thirdly, that the third defendant, Mr Glen Lawrence Hoover, one of the three directors of Sinaloa and its original shareholder, who effectively acts as its chief executive officer and has been described variously as its president and deputy president, has contravened regulation 25 of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 ( the Regulated Activities Order) by making arrangements for Sinaloa to sell its shares, and also that he has been knowingly concerned in Sinaloa's contraventions.

4

Although the order sought on this application is complex, in essence it seeks simply to stop the scheme and to freeze the defendants' assets to the amount that the FSA says appears to have been received from consumers as a result of these contraventions, thereby holding the ring until judgment or further order. The FSA's investigations are continuing. However, given (1) the concern and risk to consumers of the defendants' ongoing activities; (2) the risk of dissipation of sums paid over by consumers; (3) the involvement of a Mr Miron Leshem, who is the subject of a "cease-and-desist" order by the US Securities and Exchange Commission (barring him from participating in penny-stock offerings) in 1999, and a further order made by consent (but without admission or denial) incorporating a further penny-stock bar and a permanent injunction on offering penny-stocks, the payment of a penalty and the disgorgement of profits; and also (4) the involvement of a Mr David Hesterman who, it would appear, like Mr Leshem, has been subject to enforcement action by the United States Securities and Exchange Commission, and is also a convicted fraudster; the FSA seeks the continuation of the injunction which was granted on 31 st December 2010 until after judgment or further order.

5

The application first came on before Mr Prosser on a without-notice application on 17 th December 2010. On that occasion, Mr James Purchas of counsel appeared for the FSA. He had prepared a detailed written skeleton argument extending to some 27 pages. The evidence in support of the application consisted of the first affidavit of Mr Constantinos Alexios Pittas, sworn on 17 th December 2010, together with a substantial exhibit, CAP1, extending to some 517 pages of documents. Mr Pittas is an advanced associate in the enforcement division of the FSA. At the time the matter came before Mr Prosser, no claim form had been issued. Mr Prosser granted relief in the form of negative injunctions restraining certain activities on the part of each of the three defendants. He also granted freezing relief, and he required certain information to be provided by all three defendants. The claim form was issued in the Chancery Division of the High Court on 20 th December 2010. The brief details of claim assert as follows:

'The defendants are and have been involved, albeit in different capacities, in a scheme designed to persuade private individual consumers in the UK to subscribe for penny-shares in the first defendant. Consumers have paid out money for the shares, which appear to be of little or no value. Their money is then transferred into at least two accounts overseas. The various activities of the defendants in this scheme constitute contraventions of Sections 19, 21 and 85 of the FSMA. In addition, the entire scheme may be fraudulent and designed in order to persuade private individuals to pay far more for the shares in the first defendant than what, if anything, those shares are in fact worth. If so, this is a fraud of the kind sometimes described as a "boiler-room" or "share-sale scam" fraud. In the circumstances the claimant seeks injunctive relief under the court's jurisdiction pursuant to Section 380(1) and (3) of the FSMA, rule 25.1(f)(ii) of the Civil Procedure Rules 1998 and Section 37(1) of the Senior Courts Act 1981, [therein mis-described as the Supreme Court Act] against the defendants listed above. The claimant also seeks restitution orders under Section 382 of the FSMA against the defendants.'

I should indicate that Mr Hoover is a US citizen, resident in the United States.

6

By the time the matter came back to court on the return day before Mr Justice David Richards on 31 st December 2010 there were, in addition to affidavits and a witness statement of service, a further substantive affidavit in support of the application, again sworn by Mr Pittas (on 29 th December 2010) together with a further exhibit CAP2. On the return day, no-one attended on behalf of PH. Sinaloa and Mr Hoover did attend by counsel. At that stage they did not oppose the continuation of the order; they expressly reserved their position. Since then, two affidavits have been sworn by Mr Hoover, on 10 th and 11 th January 2011, providing information by himself, and also on behalf of Sinaloa, in compliance, or purported compliance, with the terms of the freezing injunction. An application notice for the continuation of Mr Justice David Richards's order was issued on 6 th January 2011; and it is that application which is before me today. On 13 th January 2011 a further affidavit from the FSA was sworn by Mr Jonathan Phelan, the head of the unauthorised business division of the FSA. That is directed to an issue which had by then arisen as to whether the FSA should be required to give an undertaking in damages to any third-party affected by the order, or any order to be granted on this application. Shortly before the matter came on for hearing, Mr Hoover swore a third affidavit, on 19 th January 2011, exhibiting various documents and addressing the substantive issues, at least in so far as they are raised by this interim application. In response to that evidence, a further affidavit was sworn on behalf of the FSA by Mr Guy Richard Wilkes, a solicitor and manager in the FSA's enforcement division. That was sworn on 21 st January 2011 and exhibits various documents as exhibit GRW1.

7

On the hearing of this application, Mr Nicholas Vineall QC, leading Mr James Purchas of counsel, appears for the FSA. Mr James Dingemans QC, leading Mr Tom Poole of counsel, appears for Sinaloa and for Mr Hoover. In addition, Miss Tamara Oppenheimer of counsel appears representing Barclays as intervener, on the footing that it has been given notice of the freezing injunction and claims to be affected by the terms of that order. All three sets of counsel have produced helpful written skeleton arguments. For Sinaloa and Mr Hoover, Mr Dingemans submits that the freezing injunctions made against them should not be continued. This is because, first, there has, it is said, been an impermissible plea of fraud against both Sinaloa and Mr Hoover which infringes rules relating to proper pleading. It is said that those rules have been made for good reason, and that the...

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    • Supreme Court
    • 9 May 2013
    ...in paragraph (4) removed. Barclays intervened to oppose the application, which was refused by HHJ David Hodge QC on 25 th January 2011 [2011] EWHC 144(Ch). On 18 th October 2011 the Court of Appeal reversed his decision and ordered a cross-undertaking in the terms of paragraph (4) without t......

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