The Financial Conduct Authority (A Company Ltd by Guarantee) v Wealthtek LLP (in Special Administration)

Hearing date: 26 January 2024

Approved Judgment

I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down (subject to editorial corrections) may be treated as authentic.

Introduction

This is an application by the Financial Conduct Authority (the “FCA”), the Claimant in these proceedings, to stay the proceedings for a period of 12 months (the “Application”). It is opposed by the Second Defendant, Jonathan Edward Dance ( “Mr Dance”). 1

Before I turn to set out the nature of the Application and its context within the FCA's claims against Mr Dance and other proceedings, it is helpful first to set out the background to these proceedings and the FCA's grounds in pursuing them.

Background

The FCA

The FCA is the United Kingdom regulator responsible for regulating financial services provided by “authorised persons” carrying on “regulated activities”, under the Financial Services and Markets Act 2000 (the “2000 Act”). Such activities include the safeguarding and administering of assets by authorised persons, or arranging for others to do so. The FCA's claims against the Defendants in these proceedings are said to have been brought in exercise of its functions as regulator.

Under s.1B of the 2000 Act, in discharging its general functions the FCA must so far as is reasonably possible act in a way which (a) is compatible with its strategic objective of ensuring that the relevant markets function well, and (b) advances one or more of its operational objectives, which comprise the “consumer protection objective”, the “integrity objective”, and the “competition objective”. The “consumer protection objective” includes “securing an appropriate degree of protection for consumers”: s.1C(1). The “integrity objective” (“protecting and enhancing the integrity of the UK financial system”: s.1D(1)) includes “its soundness, stability and resilience” and “its not being used for a purpose connected with financial crime”: s.1D(2).

In addition to its regulatory powers under the 2000 Act, the FCA also may commence civil proceedings to seek injunctive, recessionary, and restitutionary relief from this Court under Part XXV of the Act (ss.380 and 382), and prosecute a range of criminal offences under Part XXVII of the Act (ss.401 and 402). Where there is potential criminal conduct, the FCA may also take civil or regulatory action, as set out in its published Enforcement Guide. 2 Paragraph 12.1.2 of the Guide provides:

“ The FCA's general policy is to pursue through the criminal justice system all those cases where criminal prosecution is appropriate. …”

Paragraph 12.1.4 provides:

“ The factors the FCA may take into account when deciding whether to take such action, where criminal proceedings are in contemplation, include, but are not limited to the following:

(1) whether, in the FCA's opinion, the taking of civil or regulatory action might unfairly prejudice the prosecution, or proposed prosecution, of criminal offences;

(2) whether, in the FCA's opinion, the taking of civil or regulatory action might unfairly prejudice the defendants in the criminal proceedings in the conduct of their defence; and

(3) whether it is appropriate to take civil or regulatory action, having regard to the scope of the criminal proceedings and the powers available to the criminal courts.”

The Defendants

On 3 April 2023, the FCA obtained urgently, without notice and out of hours, a worldwide freezing order (the “WWFO”) and other interim injunctive relief against Mr Dance from this Court in support of claims made against the Defendants under ss.380 and 382 of the 2000 Act. The purpose of that relief was to prevent Mr Dance from continuing to source client money and from dissipating his assets. At the same time, the FCA obtained the appointment of interim joint managers over WealthTek. Those orders were made by Roth J.

On 4 April 2023, the FCA brought proceedings against WealthTek and Mr Dance in this Court under Part XXV of the 2000 Act by issue of a Claim Form (Claim No. BL-2023-000509) (the “Claim Form”) ( i.e. these proceedings, the “High Court Proceedings”). The same day, Mr Dance was arrested on suspicion of committing various criminal offences and interviewed under caution. He exercised his right to silence in interview.

On 28 April 2023, Mr Dance consented to the WWFO and other interim injunctive relief being continued at the re-adjourned return date hearing.

The High Court Proceedings then took the following course. The FCA served Particulars of Claim ( “PoC”) dated 4 May 2023. On 23 May, Mr Dance sought the disclosure of certain documents from the FCA before filing a Defence; those documents were his email drives, statements for the bank accounts referred to in the PoC, and WealthTek's daily reconciliation spreadsheets. He says he did so to enable him to answer the allegations set out by the FCA in the PoC. The FCA's position was that Mr Dance could properly plead his Defence by reference to the documents relied upon by the FCA. Mr Dance issued an application for specific disclosure on 8 September.

A further development then occurred. The FCA sought (on 13 October 2023) and obtained (on 8 November 2023) a criminal restraint order ( “CRO”) against Mr Dance under s.41 of the Proceeds of Crime Act 2002 (the “2002 Act”) from the Crown Court sitting at Southwark (Case No. RO56/2023) (those proceedings, the “Crown Court Proceedings”). I made that order, and at the end of the hearing I sat as a judge of this Court in the High Court Proceedings and varied the WWFO and other interim injunctive relief so as to limit it to an interim prohibitory injunction (the “IPO”).

Meanwhile, on 18 October 2023, the FCA wrote to Mr Dance's solicitors that it was considering a stay of the High Court Proceedings. This was followed by a letter dated 16 November 2023, in which Mr Dance was invited to consent to a stay. On 24 November Mr Dance sought a listing of his specific disclosure application. The FCA notified the Court of its intention to issue a stay application (which it did on 4 December 2023), and asked that it be heard before Mr Dance's specific disclosure application. On 8 December Deputy Master Linwood directed that the stay application should be listed to be heard in Judge's Listing and that Mr Dance's specific disclosure application should not be heard in the meantime. The FCA's stay application then came before me for hearing on 26 January 2024.

The FCA's claims against Mr Dance

High Court Proceedings

The brief details of the claim in the High Court Proceedings, set out on the continuation sheet of the Claim Form dated 4 April, assert that:

(a) WealthTek is an “authorised person” under the 2000 Act and, at all times material to the proceedings, had been granted certain permissions by the FCA to carry on regulated activities. Those permissions, however, did not include permission to carry on the regulated activity of safeguarding and administering assets, or arranging for others to do so;

(b) Mr Dance is a designated member of WealthTek and one of two individuals performing senior management functions at WealthTek, with Mr Dance holding the FCA Significant Management Functions ( “SMF”) 16 (Compliance Oversight) and 27 (Partner Function);

(c) despite holding client assets (including client money) from at least 28 January 2020, WealthTek told the FCA in each of its five client money and client asset reports in the period 30 September 2020 to 30 September 2022 that it had not held client money or client assets in those periods;

(d) WealthTek had concealed the existence of client money accounts; and

(e) Mr Dance had fraudulently altered the FCA document setting out WealthTek's permissions, to the effect that the FCA had granted WealthTek permission to carry on the regulated activity of safeguarding and administering assets.

The Claim Form sought declaratory, injunctive and remedial relief against the Defendants, as well as an account of profits.

The PoC assert that:

(a) Mr Dance dishonestly made false statements to the FCA about his involvement in bankruptcy proceedings;

(b) WealthTek's application form for permission to carry on regulated activities included an application that the firm “ not be subject to a requirement not to hold client money”;

(c) during the application process, Mr Dance agreed to withdraw WealthTek's application that its permissions should not be subject to a requirement not to hold client money, and to withdraw its application for permission to arrange safeguarding and administration of investments;

(d) from on or about 28 January 2020, the FCA's Register displayed the restriction on WealthTek's permissions, i.e., that it could control, but not hold client money, and Mr Dance would have known of the same by that date or shortly thereafter;

(e) nonetheless, WealthTek held client money and arranged the safeguarding and administration of investments;

(f) Mr Dance dishonestly concealed from the FCA and persons appointed by the FCA that WealthTek had been holding client assets and/or client money, when Mr Dance had...