The United Kingdom’s Financial Services Authority has issued a fine against law firm Thorntons Law LLP for misleading clients during the marketing of structured products that had the backing of now-defunct prime broker Lehman Brothers Holdings Inc. The fines against the Scotland- based firm and two individuals were levied because they did not warn customers about the riskiness of the products.
Thorntons received a fine of 35,000 pounds ($55,000) and Michael Royden, a partner at the firm, 10,500 pounds, the regulator said in a statement today on its website. The FSA also fined Robert Peter Yarr, a financial adviser at McClelland Yarr Financial Services Ltd. in Belfast, 28,000 pounds.
The FSA said in October that three firms were facing fines after it probed sales literature in the 107 million-pound structured-products market. Lehman’s September 2008 collapse and bankruptcy prompted lawsuits by former clients whose assets were frozen in insolvency proceedings around the world.
“Firms and individuals giving investment advice must properly assess their clients’ needs and make suitable recommendations,” FSA head of enforcement Margaret Cole said in the statement. “They must also have the necessary systems and controls in place to ensure that this happens.”
Royden was in charge of compliance at Thorntons’ Investment Services at the time the firm was offering the products from November 2007 and August 2008. Structured products were typically marketed as guaranteeing the principal amount of money invested, even if no returns were possible. After Lehman’s collapse, the investors’ original contributions weren’t repaid.
Thorntons “commissioned an independent review of systems, following which, a number of improvements have been implemented,” the firm said in an e-mailed statement. “We are in the process of reviewing each case to ensure that our obligations regarding redress are met and a number of clients affected by the FSA findings have already received payment.”
Royden and Yarr didn’t immediately respond to requests for comment. All three received the FSA’s standard 30 percent discount for cooperating with the probe.
In February, the regulator fined a unit of RSM Tenon Group Plc, a London-based financial-advice company, 700,000 pounds for failing to explain to customers the risks of products backed by Lehman.