The Financial Services Authority (FSA) has fined stockbrokers Hoodless Brennan (Hoodless) for using unacceptable sales practices and failing to treat its customers fairly when selling shares in a company called Knowledge Technology Solutions (KTS) on 12 June and 25 July 2003.
The unacceptable sales practices included persuading customers to buy stock when they were not ready to do so and persuading customers to take more stock than they appeared to want.
Brokers also used information about a contract between Hoodless and KTS, that was not in the public domain, as an inappropriate sales aid to persuade customers to buy KTS shares.
They provided customers with unsubstantiated personal opinion on the shares which was potentially misleading. Brokers had not been briefed about the contract and as a result were not in a position to comment on its relevance to the sale of KTS shares.
The FSA found that Hoodless had failed to deal appropriately with the issue of whether the information it held about the contract with KTS was in the public domain. It did not clarify the position with KTS, take professional advice internally or externally, or take adequate steps to brief brokers on whether they could mention the contract to customers.
Margaret Cole, director of enforcement at the FSA, said: "The fair treatment of customers must be part of corporate culture so that a firm treats its customers fairly on all occasions of its dealings.
"Brokers at Hoodless Brennan used unacceptable selling practices and did not pay enough attention to the interests or the information needs of their customers. Nor did they take time to communicate with their customers in a way which was clear, fair and not misleading. The FSA will not tolerate this method of selling shares to private customers."
Examples of unacceptable practices used by Hoodless Brennan brokers:
One broker persuaded his customer to buy 100,000 shares rather than the 50,000 that the customer had requested. The customer's wishes were overridden by the broker who told him, "They've already gone. I've taken them off the board." This comment implied that it was too late for the customer to change his mind even though, by this stage of the conversation, he had not received all of the risk warnings and was entitled to change his mind.
Another broker spoke to a customer who was a doctor at work in a hospital. The broker persuaded the customer to purchase KTS shares even though the customer had explained he did not want to make a decision until the afternoon as he wanted to find out more about KTS and was at work and unable to concentrate on two things at once. The broker said, "You don't need to concentrate, all you need to be able to do is say ok…that's fine."
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