The couple, John and Colette Chiesa, were issued with a decision notice in October and barred from performing any function in relation to any regulated activities.
They operated an authorised partnership which traded principally as Westwood Independent Financial Planners, a Scottish firm.
In 2011, three years after an FCA probe began, their firm was fined £100,000 for failing to provide suitable advice on geared traded endowment policies. Mr and Mrs Chiesa had liabilities of more than £5 million, mainly from customers’ claims against Westwood. The company was placed into sequestration.
A final notice was issued to the firm in 2013.
Last year, the FCA fined Mrs Chiesa £50,000 for “failing to deal with it in an open and cooperative way in making misleading statements” during a compelled interview.
On 23 November, Mr and Mrs Chiesa referred the FCA’s decisions to the Upper Tribunal.
They wanted the FCA to disclose materials that showed the internal decision-making related to their investigation. They claimed the FCA acted “acted in bad faith” and the legal representatives alleged that “it appears that the FCA may have misused their investigative powers under section 56 FSMA as part of a strategy to ultimately extract from Mr and Mrs Chiesa payment of the outstanding fine.”
The official tribunal documents stated: “Mr and Mrs Chiesa contended that there are reasonable grounds to believe that the investigations underlying these proceedings may have been instituted and pursued in bad faith.
“They allege that the investigations and proceedings were merely a means to an end, namely creating a pretext for bringing misconduct proceedings that would enable the FCA to impose a financial penalty.
“Mr and Mrs Chiesa submitted that the financial penalty imposed on Mrs Chiesa “may have been intended” as a substitute for the fine previously imposed on Westwood which the FCA was unable to recover due to Westwood’s insolvency.”
Background: As provided by the official Upper Tribunal Tax And Chancery Chamber papers
Both Mr and Mrs Chiesa were approved at Westwood to perform the CF 4 (Partner) controlled function on 1 December 2001. Mrs Chiesa performed the CF 21 (Investment adviser) controlled function at Westwood during the period from 11 December 2001 to 1 October 2003. Mr Chiesa was additionally approved to perform the CF 10 (Compliance oversight), CF 11 (Money laundering reporting) and CF 30 (Customer) controlled functions and had responsibility for insurance mediation.
In practice, Mr Chiesa had the lead advisory and customer facing role and took the lead in generating new business, while Mrs Chiesa occupied an operational management role, working as the office manager dealing with bank accounts, staff pay and logistics.
In April 2008, the FCA commenced an investigation into Westwood’s sales of geared traded endowment policies (GTEPs).
This resulted in the FCA issuing a Decision Notice to Westwood on 31 May 2011 imposing a financial penalty of £100,000 for the firm’s failure to ensure its clients received suitable advice in relation to the GTEPs that it sold. Westwood referred that Decision Notice to the Tribunal on 23 June 2011. On 22 November 2013, the Tribunal upheld the FCA’s decision to impose a financial penalty on Westwood of £100,000 for mis-selling GTEPs.
Continued below...
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As partners with unlimited liability in Westwood, Mr and Mrs Chiesa were liable for Westwood’s debts. In October 2011, Mr and Mrs Chiesa entered sequestration (due to an unpaid statutory demand made by an adviser working with Westwood).
At the time of the sequestration, Mr and Mrs Chiesa had significant liabilities due to the need to pay compensation in respect of numerous complaints relating to advice given by Westwood. Westwood and, therefore, Mr and Mrs Chiesa had liabilities of more than £5 million, mainly from customers’ claims against Westwood.
The FCA alleges that, in the build-up to sequestration, Mr and Mrs Chiesa took a variety of steps to protect their assets and money from tax and creditors’ claims. In November 2011, Mr Charles Moore was appointed as trustee in sequestration. As part of the sequestration process, Mr and Mrs Chiesa were required to make full disclosure to Mr Moore to enable him to realise their assets for the benefit of the creditors of Westwood.
Mr and Mrs Chiesa remained approved persons, albeit inactive, while the estate of Westwood was wound up.
The FCA alleges that Mr Chiesa misled Mr Moore by deliberately making misleading disclosures and/or failing to disclose the true position as to their income, expenditure and assets. The FCA further alleges that Mrs Chiesa deliberately acquiesced with and assisted Mr Chiesa in such conduct.
The FCA asserts that Mr and Mrs Chiesa gave Mr Moore the impression that they had limited income, expenditure and assets while telling a different story to banks from whom they were seeking a loan.
The FCA claims that, in a compelled interview in February 2015, Mrs Chiesa attempted to mislead the FCA by making statements designed to give the impression that she lacked capability and understanding in relation to Mr and Mrs Chiesa’s relevant business arrangements, when she in fact understood and had an important role in those arrangements. The FCA also contend that Mrs Chiesa attempted to mislead the FCA in relation to her ownership of valuable jewellery.
The decision
Rounding up the appeal, Judge Greg Sinfield made the following statement:
“In the absence of direct evidence, it seems to me that counsel for Mr and Mrs Chiesa are compelled to contend that it is necessary for disclosure to be provided so that any allegations of bad faith and abuse of process can be properly pleaded by them and to enable the Tribunal to deal with the case fairly and justly. I do not accept that submission. It amounts to the proposition that merely asserting that there has been bad faith justifies ordering disclosure.
“In my view, that cannot be correct. There is nothing in the case law authorities cited to me that indicates that it would be appropriate to order disclosure of documents or other materials solely on the basis of a party’s allegation of bad faith and abuse of process where evidence to support such an allegation or allow an inference of such conduct to be drawn is lacking. The person making the application bears the burden of proving, to the normal civil standard, that there was bad faith or some other abuse of process.
“In my view, Mr and Mrs Chiesa have failed to discharge that burden. I do not accept that the evidence presented to me shows or supports an inference that these proceedings were instituted and pursued in bad faith or are an abuse of process.
“Accordingly, even if I were persuaded that the issue of the FCA’s conduct were relevant, I would not order the FCA to make the disclosure requested by Mr and Mrs Chiesa in their application.”
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