The cost of FSA blindspot that robbed us of our life's savings.
Stephen Womack, Mail on Sunday
MISTAKES by regulators gave free rein to a crooked financial adviser to loot more than £2.8m from his wealthy clients, according to documents obtained by Financial Mail.
GUILT AND REMORSE: Stephen Higham admitted fleecing clients of £2.8m
Stephen Higham, 53, pleaded guilty last week to intent to defraud creditors. He was remanded in custody and faces up to seven years' jail when he is sentenced on May 13.
Higham tricked about 30 clients, among them rich businessmen and directors. He told them their money was invested in Treasury bonds, but he paid it into accounts he controlled.
Higham pleaded guilty at Nottingham Crown Court, but that will bring little comfort to investors. The best estimate is that creditors will get back between 5p and 9p of each £1 they invested after the costs of liquidating the Nottingham firm are taken into account.
Investors might receive compensation through the Financial Services Compensation Scheme. The FSCS says it will accept claims against Oaktree, paying each investor up to £48,000.
That will cover small investors' losses in full, but it will leave others, such as Mary and Alan Rooksby, hundreds of thousands of pounds out of pocket. They invested more than £500,000.
Some bitter investors say financial regulators share the blame for their losses. Errors by regulators over more than ten years meant that Higham's previous criminal convictions were not recorded correctly, leaving Oaktree under a lighter regulatory touch than it merited.
Oaktree was originally authorised by the watchdog Fimbra in July 1988 with Higham as managing director. A year later, Higham was convicted at Derby Crown Court on two counts of false accounting. He was fined and given
This smirking fraudster lastweekadmitted fleecing clients of £2.8m and faces up to seven years in jail. But the watchdogs who could have stopped him sooner insist that they're not to blame and refuse to compensate his victims. Have they no shame? a two-month suspended prison sentence.
The charges related to his employment at a previous firm, Wilsthorpe Insurance Consultants in Long Eaton, Derbyshire, where Higham paid more than £13,000 in clients' premiums into his own accounts.
Fimbra decided that Higham, of Rugby, Warwickshire, and Oaktree could continue under more rigorous supervision.
In 1994, the Personal Investment Authority took over regulation of advisers. A PIA committee decided that Oaktree could continue in business, but ruled that Higham's past record should be highlighted on the regulator's database.
Oaktree was classed as a 'high-risk' firm, but 'errors' meant that details about Higham and Oaktree were left off the regulator's Shared Intelligence Service. The consequence of leaving Oaktree off the list was that inspections of the company were not as rigorous as they could and should have been.
The PIA visited Oaktree in 1996 and 1997 and the errors continued after the FSA took over regulation in 2001. In October 2002, the FSA was tipped off by former directors of Oaktree, concerned at the way the business was run. The regulator started an inquiry and finally visited the company in March 2003.
But a breakdown in the system meant that the investigators were not aware of Higham's previous convictions. Two separate FSA teams gathered information with no one seeing the whole picture.
The inquiry failed to uncover anything of concern and Oaktree carried on trading until an investor finally went to the FSA.
VICTIMS: Ray Nipper, Noel Hand with Mary and Alan Rooksby
The regulator's internal investigation after the fraud came to light said: 'Had the team been aware of Higham's conviction, it would have conducted the visit differently-The team would probably have included an accountant and asked more detailed questions about financial aspects of the firm's management.'
The investigation concluded: 'The PIA and FSA have shown a lack of care in their supervision of Oaktree.'
Yet the report ruled 'there was no evidence to show that staff would have discovered fraudulent activity had they had complete access to the requisite records'. As a result, the FSA ruled out any compensation for investors.
Noel Hand, 50, who used to run a paving company in Leicestershire, lost more than £300,000 invested with Higham. 'I blame the FSA for part of my losses,' he says. 'How can you put someone with previous convictions in a position of financial trust without appropriate checks?'
Mary and Alan Rooksby from north Nottinghamshire were among the biggest losers from Higham's criminal activities. On Thursday, Alan, 68, who ran a roofing company before retiring, told Financial Mail: 'This is not a victory. I'm left with a hollow feeling. I feel that a curtain is being drawn on a distressing episode in my life.'
Higham's solicitor, Paul Tubb, said: 'Stephen Higham wishes to convey his deepest remorse and regrets for his actions that led to numerous investors losing money entrusted with him. He is wrought with guilt and shame.' The FSA declined to comment on the case
WHERE DID THE MONEY GO?
12:00 - 06 March 2004
Receivers are still calculating "missing millions" during investigations into crashed Oaktree Financial Services. Clients talked to Business Editor RICHARD TRESIDDER about their fears that the fruits of their life's work have disappeared
Paul Teece never questioned the security of his investments - especially as they seemed to be doing so well.
The Beeston businessman had put hundreds of thousands in what he thought were safe investments giving a rate of return that was almost too good to be true.
Unfortunately for Mr Teece, that is exactly what they were.
A chance encounter in a pub led him to discover his supposed nest egg of Treasury bonds and gilts were not all they appeared.
It turned out every single penny of £414,800 he says he invested using Nottingham-based Oaktree Financial Services was missing.
He is one of a number of well-off Oaktree clients who have lost money totalling more than £3.45m following the collapse of the firm, based at Phoenix Place in Cinderhill.
Now the company's dealings look set to be the subject of a police investigation after financial officials said clients' money was misappropriated.
In a taped interview with officials from the Financial Services Authority (FSA), Oaktree director Stephen Higham admitted that Mr Teece paid £414,800 to Oaktree for investment. But it was paid into Oaktree's own business bank account.
Mr Teece, who was referred to Oaktree by a friend of his father, said: "I have been investing surplus money from my business over two-and-a-half years using Oaktree.
"Stephen Higham would phone me saying he had surplus stock and asking if I wanted any. He would issue an Oaktree certificate saying where the money was invested, either Treasury bonds or gilts. It would say where the money was invested, the interest rate and date of maturity. The piece of paper looked official."
Then last summer, a chance conversation in a pub with an acquaintance who was a financial adviser started ringing alarm bells.
Mr Teece told his friend he was getting a return of 8.5% on his investments. It was a figure well above the going rate.
Mr Teece, of Beeston Fields, said: "He expressed surprise at the 8.5% rate of interest and sent someone from his firm to look at the paperwork.
They expressed alarm and said none of the Treasury bonds or gilts numbers seemed to exist.
"They recommended I contact the FSA which I did. Three FSA staff came to see me in January. The next thing I knew was they went to Oaktree, investigated, and advised me to contact the fraud squad."
The Evening Post revealed earlier this week that the FSA had intervened to stop Oaktree giving investment and pension advice. An administrative receiver was appointed on Tuesday by Oaktree's bankers, HSBC.
The receiver, Richard Saville, of Begbies Traynor, said up to 30 clients of Oaktree were affected out of 4,000 or 5,000 people on their books.
Paul Worth, a partner at Nottingham solicitors Eversheds has been instructed by six Oaktree clients who are owed £2.1m.
Mr Saville said: "The £2.45m relates to cash investments clients have made believing they have purchased Treasury stock.
"Of that £2.45m, a significant proportion is the original capital and a small amount is the interest. We can trace that money coming in but it is not there now.
"At this point several clients have intimated they have made investments greater than those recorded in the records and we are now looking to see if there are records missing."
The FSA interviewed Stephen Higham on February 19 and the next day, it issued what is called a First Supervisory Notice. It banned Oaktree from carrying out any regulated activity.
The FSA said that in a taped interview on February 19, Stephen Higham admitted £414,800 had been paid to Oaktree by Paul Teece to be invested in Treasury stock.
"The sums received from the client had not been invested but had been paid into Oaktree's business bank account from which they were used by Oaktree to meet its business expenditure," said the supervisory notice.
It concluded that Oaktree had failed to conduct its business with integrity and in compliance with proper standards.
Mr Saville says he has records for £411,000, adding: "We can't find a penny of that."
In one case Ray Nipper, a retired London property owner, wined and dined Stephen Higham for a week at his French home in Normandy last year. He believes he has made investments in the region of £700,000.
Little did Mr Nipper know as he enjoyed Mr Higham's company, that his life savings were disappearing.
Mr Nipper, who now lives in a motor home in the USA, said: "Eight years ago we moved to France having sold our properties. We gave Stephen Higham £500,000 to invest.
"He suggested quarterly payments to live off. Every year we got a valuation giving a glowing report on our investments. In the meantime, we gave Oaktree a further £300,000. It has crucified our life's work."
Mr Nipper said that other than his house in Normandy, the only assets he has are his motor home in Arizona where he is living, a car and the lot on which it is parked.
Mr Saville can only find records for £190,000 of Mr Nipper's money. The money itself is missing.
Another investor pensioner John Bedford, of New Maldon in Surrey, says he is missing £17,500 although other investments made though Oaktree, totalling £150,000, are thought to be safe.
"I made considerable investments, £150,000, which have been satisfactory. Some time in the last year or two, I invested £10,000 and £7,500 separately in bonds.
"Stephen Higham issued bonds in the name of Oaktree which turned out to be false. I didn't know anything was a wrong until the FSA called me on February 17.
Eversheds partner Mr Worth said: "We are liaising with the FSA and the receivers and we are considering all options, including court proceedings. We can explore all avenues for the recovery of funds including the company, the directors and compensation schemes. From our investigations to date, we are satisfied investors' funds have been misappropriated. We are liaising closely with the FSA."
But the missing money that brought Oaktree down was a shock to Stephen Higham's brother, Chris, a fellow director. On Monday, before the receivers were appointed, he told the Post: "Temporarily, we have had our ability to write certain business placed on hold. I am looking at all the options and an appeal is an option.
"I am not privy to all the information the FSA has - I still don't know the full extent of this."
Mr Saville is now wrestling with the problems and Chris Higham has stayed on to help while a buyer of the client base is found.
Mr Saville said: "The vast majority of Oaktree clients paid money to institutions in which they invested.
"Only those who paid money to Oaktree have money at risk."
He added: "We know the money has been misappropriated but I don' t want to say how. The FSA is carrying out a detailed review of the records and there is every likelihood this will be reported to the police."
Mr Saville said there were two avenues for compensation for investors: "The FSA's investment compensation scheme can pay out a maximum of £48,000 per investment. The question is, do they qualify, but I am not in a position to elaborate because it throws light on how the money went missing."
And Mr Saville said the firm's offices were worth up to £1.25m and there were borrowings of £700,000. He also hoped to sell the client base for "a six figure sum".
A number of investors have complained to the FSA.
A spokeswoman said it was not permitted to discuss specific complaints against firms.
But she added: "In these sort of circumstances, we will continue to look into the actions at the firm. Our prime objective is to make sure consumers' interests are protected."
A spokeswoman for the Financial Services Compensation Scheme said it was not involved with any claims arising out of Oaktree so far.
She said: "We step in when a firm cannot pay a claim but there are limits as to what we can do."
She said the maximum pay-out to an investor was £48,000, made up of 100% of the first £30,000 and £90% of the remaining £20,000.
"We are the safety net but unfortunately there are limits to the compensation we can pay."
Efforts to find Stephen Higham for comment were unsuccessful. Neighbours at his St James's Park home, near Radcliffe-on-Trent, had not seen him for two weeks though he is thought to be in the country. Notts Police said that there were no criminal proceedings at this stage.
Firm made £22,709 profit
Oaktree Financial Services Ltd was set up in October 1987.
Total turnover in the 12 months to the end of March 2003 was £1.09m, down from £1.44m in 2002.
It made a pre-tax profit of £22,709 last year against £24,242 in 2002.
'I was told £300,000 of my money had disappeared'
Noel Head immediately called Notts Police when Oaktree director Chris Higham confirmed that £300,000 Mr Head says he had invested was missing.
Mr Head thought he had invested in treasury bonds, property bonds and gilts.
"I was shocked that somebody was allowed to dip into my funds without anybody knowing," he said.
Mr Head learned of problems at Oaktree when the Financial Services Authority (FSA) called him on February 23. Two days later he travelled to Oaktree's Phoenix Place offices at Cinderhill.
There, Mr Head, a businessman from Rugby, says Chris Higham confirmed the money was missing.
"Chris was emotionally upset - a nice bloke," said Mr Head. "I borrowed an office phone and called the police."
Mr Head was introduced to Oaktree by a director of the business. He continued: "I started investing in around 2001, dealing with Stephen Higham. I have invested in excess of £300,000, my personal savings, money invested over a period of time. Stephen Higham made recommendations."
Mr Head said the first he knew of problems was on February 23 when he was asked by the FSA if he had investments in Oaktree.
"I phoned them back and they said they were looking into the activities after receiving a complaint from an investor. I made discreet inquiries and found there was a problem."
The receiver appointed by the FSA to Oaktree, Richard Saville, said Oaktree records showed an investment of £182,000 of Mr Head's money.
A Notts Police spokesman said: "There is no police investigation at this stage."
