A group of 200 out-of-pocket investors is mounting a legal case against the government for allegedly failing to stop serious errors at the FSA, and in so doing improperly implementing MiFID.
Members of the Cameron Farley Action Group claim they lost millions as a result of the FSA's mis-handling of forex trading firm Cameron Farley's failure four years ago.
But as the FSA is immune from prosecution, the group plan to take the government to task for alleged negligence in its duty to implement the Markets in Financial Instruments Directive (MiFID) - by allowing the regulator to preside over the loss of investors' money.
The group claims the FSA failed to ensure their money was secure and ring-fenced when it issued a 'freezing and arrestment' order on Cameron Farley in September 2008.
It issued the order after suspecting the company was accepting deposits without authorisaton.
In doing so, the group alleges, the FSA was tasked with looking after their money when it "disappeared", and the government had a responsibility to ensure the FSA carried out this task.
The Cameron Farley Action Group is represented by the same law firm which acted on behalf of some of the Equitable Life pension holders in their successful action against the government, Clarke Willmott.
Philippa Hann of the firm said: "The government has a responsibility to implement MiFID. I don't believe MiFID allows such a default by the regulator."
She said in what was "little more than a Ponzi scheme", Cameron Farley cold-called unsophisticated investors and supposedly invested their money though a foreign exchange platform in New York, Gain Capital.
Whole families invested, including on behalf of their children, according to Hann.
But Cameron Farley did not have FSA authorisation, and could never have obtained it because managing director Stephen Farley had been convicted of fraud and was never FSA approved.
Although knowing about the business and Farley, the FSA only closed Cameron Farley in 2008, Hann has alleged.
The group is currently building a fighting fund to launch the action, with investors being asked to contribute between £225-£325 each.
Has been cold-calling consumers
New shares admitted to London Stock Exchange
Slow and steady growth
Missed funding target by £240,000
Denies any wrongdoing