Injunctive and Restitutory Remedies of the Securities and Investments Board
| Pages | 64-65 |
| Published date | 01 February 1995 |
| DOI | https://doi.org/10.1108/eb025673 |
| Date | 01 February 1995 |
| Author | Richard Harwood |
| Subject Matter | Accounting & finance |
Journal of Financial Crime — Vol. 3 No. 1 — Civil Procedure
Injunctive and Restitutory Remedies of the
Securities and Investments Board
Richard Harwood
The Securities and Investments Board (SIB) is the
senior regulator of investment business in the UK.
It has considerable civil powers to restrain contra-
ventions and secure compensation for investors.
Under the Financial Services Act 1986 (FSA),
investment business can only be carried out by
authorised or exempted persons.1 Authorisation
normally comes from membership of a self-reg-
ulating organisation (such as the Securities and
Futures Authority) or of a recognised professional
body (such as the Law Society).
Carrying out unauthorised investment business
is a criminal offence2 and enforcement is suppor-
ted by civil remedies. By s. 6(1) the SIB can apply
to the High Court for an injunction to restrain the
breach. These orders have been obtained in at least
16 cases.3
The FSA gives powers to the SIB to bring resti-
tutory actions on the investors'
behalf.
These
powers serve a dual function of compensating
investors and law enforcement.4 The ability to
deprive an infractor, or his facilitators, of their
profits and to impose compensatory liability is seen
as a way to discourage improper activity.
There are two separate restitutory powers in s.
6: s. 6(2) and (3). Section 6(2) enables the court,
on the application of the SIB, to order persons
carrying out unauthorised investment business
'and any other person who appears to have been
knowingly concerned in the contravention' to take
steps to restore the parties to their pre-transaction
position. A straightforward example would be an
order that a person who sold shares without
authorisation should repay the purchase price on
the shares being transferred back to him.
Securities
and Investment Board v Pantell (No. 2)5 applied
knowingly concerned to a facilitator, in that case
solicitors who had received funds for onward
transmission to the unauthorised person.
There parties would not be restored to their
previous positions. The unauthorised person
would still have the money (subject to proceedings
against it), the investors would have an equivalent
sum of money paid back to them, and the sol-
icitors would have the (worthless) shares and
would have paid the investors. It is a sensible
interpretation. Investment offences would be
harder to commit without the connivance of pro-
fessionals.
By s. 6(3) the SIB may apply to the court where
a person has been carrying out unauthorised
investment business and has made profits from it
or one or more investors have suffered loss or
been adversely affected as a result of misleading
statements or market manipulation (s. 47) or cold-
calling (s. 56) or by a failure to act substantially in
accordance with the rules or regulations made
under Chapter V (eg the Conduct of Business
Rules).
The court may then order the person to
pay 'such sum as appears to the court to be just',
having regard to the profits made or loss or
adverse effect resulting, into court, to a receiver or
to the SIB. This money is then paid out, as the
court directs, to persons who have entered into
transactions with the person.
Unlike s. 6(2), it applies solely to the person
carrying out the unauthorised investment business,
not to a person knowingly concerned in the con-
travention. While the targeting of profits is an
aspect of law enforcement, discouraging such
activity by removing the intended gain, the loss
aspect is compensatory. But it is on the basis that
the loss has been caused by a breach of the rules
governing authorised persons (unlike s. 6(2)), not
merely that the business was unauthorised and a
loss was made.
Parallel remedies are available in s. 61 in respect
of breaches of the rules governing authorised per-
sons.
Injunctions can restrain breaches of the
Conduct of Business Rules and the provisions on
market manipulation and cold-calling.6 Section
6(1) also provides an equivalent to s. 6(2) requiring
the contravener or any person knowingly con-
cerned to remedy the contravention. This order
has to be to remedy the contravention and for no
other purpose.7
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