Advisers who recommended contracts for difference (CFD) trader Direct Sharedeal have been caught in the middle of a blame game after the firm was put into administration.
Financial advisers provided the bulk of the Glasgow-based stockbroking firm's clients through referrals to invest in its high-risk CFD investments.
CFDs are highly leveraged, opening investors up to increased speculative gains but also large potential losses.
Direct Sharedeal's trading of CFDs is the subject of at least 60 claims at the FOS which will now revert to the FSCS after the firm has been put into administration.
Investors, some of whom lost 98% of their money in CFD trading, allege Direct Sharedeal failed to properly asses their attitude to risk or carry out any suitability checks to confirm such a high risk investment was appropriate for them.
But Direct Sharedeal said judging suitability was partly the responsibility of the clients' financial advisers.
In correspondence seen by IFAonline, dated 8 October, Direct Sharedeal states: "We rely on the intermediaries to ensure that the clients are suitable for our high risk product; in turn we do carry out our suitability checks when we receive the application forms before agreeing to open their accounts."
The firm said it would not make presentations directly to investors unless requested to do so by their financial adviser and in their presence.
But Regulatory Legal, which is acting for investors who blame Direct Sharedeal for losses prior to its insolvency, will argue the firm can not pass the buck to advisers.
"The regulated activity in managing the account is undertaken by Direct Sharedeal. It is therefore obligated under the FSMA 2000 regime," the law firm said.
It has claimed Direct Sharedeal also failed to manage investors' accounts with skill and diligence, within the agreed parameters, or to operate the agreed stop/loss provisions of the accounts.
Investors claim Direct Sharedeal failed to keep them updated on the progress of their accounts in line with their obligations, meaning they were unaware of their ongoing losses.
The FSA has been monitoring Direct Sharedeal's activities for some time. In February it fined the firm £101,500 after its appointed representative, First Colonial Investments LLP, used misleading sales pitches which failed to set out the inherent risks of buying penny shares.
Direct Sharedeal declined to comment.
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