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Peter Naylor worked as an insurance/investment consultant in Gloucestershire in the early 1980’s. Whilst still working for other companies he formed a business trading as Naylor Financial Services and gradually convinced clients to move to his business. When sufficient clients had been taken on, he went into business solely for himself and arranged legitimate insurance/pensions and investments with recognised financial institutions. The business was set up prior to any regulation but eventually he became a member of FIMBRA.
When clients came into funds he offered them a guaranteed fixed investment scheme, free of tax, at much better rates than could be earned in the market place. He called the products Fixed Rate Deposits/Bonds and Fixed Rate Investments. He told the clients that their investment would run for three years, during which time they could take any interest as income on a monthly, six-monthly or annual basis. Alternatively, they could allow for capital growth and have the return of their investment, including capital and interest, at the end of the term. Naylor gave his clients investment certificates which described these terms.
In some cases clients could obtain the return of some of their capital providing at least six months’ notice was given. They were told that he was able to obtain such good rates because they were to become part of a pool of investors who, in effect, had each purchased a “slice of the cake”.
Clients were introduced by word of mouth, mainly by other clients who could evidence exceptional returns on their own investments. He introduced exclusivity into the relationship with clients by stating that there were only limited opportunities to invest as and when an investor dropped out of the scheme, died, or the scheme came to an end. He told them that he needed six months’ notice for return of capital to enable him to introduce another investor into the scheme and replace the withdrawn funds.
Clients were told that their funds were to be invested in permanent interest-bearing bonds with recognised building societies, overseas currencies/properties, off-shore investments, and even Government Gilts. In fact, each client was being used to pay Naylor’s liabilities to an existing client and even to repay their own capital to themselves as income.
To keep the scheme running, he needed to continually attract new investors or further investment from clients. He achieved using mail shots, stating that an unexpected opportunity to invest had arisen (always at a slightly higher interest rate than they were already receiving and always with a ceiling on the amount that they could personally invest, as if he was doing this as a big favour) or by asking them to roll over the proceeds of their earlier investment into a preferential scheme, allowing return of capital after only 30 days’ notice and at a higher interest rate.
Although the bubble would eventually have to burst, Naylor kept the fraud going for 20 years by sheer force of his own personality or by recruiting vulnerable individuals who would receive personal services such as taking them shopping and attending to all of their other financial affairs, such as tax returns, which he did for nothing. He preyed on the elderly, widows, and divorcees, in addition to persons who were very naïve in financial matters and totally trusted him.
With the advent of the Personal Investment Authority (PIA), Naylor avoided regulation by forming Naylor Investment Services as the regulated business. He put all legitimate investment business through that organisation and kept Naylor Financial Services running in the background, holding it out as purely a business to run the office administration and wages. This meant that the regulatory authorities only saw what he wanted them to see which would have been a well-run, regulated investment business. All monies were kept separate in respect of the fraud and paid into a “client account” which had the added effect of giving the business even more credibility with the investors.
Eventually, and mainly as a result of the death of an elderly spinster who had contributed more than £250,000 to the scheme, he was unable to generate sufficient monies to pay the incomes he had already arranged and complaints were made. This lead to the involvement of the PIA and the Bank of England who then referred the matter to the police due to the level of criminality involved.
Following a detailed investigation and prosecution, Naylor pleaded guilty. He was sentenced to of two-and-a-half years imprisonment. The total loss to the investors was initially over £1 million, of which approximately 40% was recovered through the Investors’ Compensation Scheme.
Afterword
The regulation of Independent Financial Advisors by the PIA now means that IFA’s may not deduct commission from client funds. Information to this effect is included in the small print on the Regulator’s Statement document which must be issued each time an investment is made.
If you are an investor and you want independent confirmation as to whether an IFA is bona-fide, you can make contact with the Financial Services Authority. The FSA will be able to confirm that the IFA is registered or will investigate a report of an individual who appears to be trading whilst unregistered. The FSA will also investigate allegations or concerns regarding the conduct of an IFA.
An Investor's Compensation Scheme deals with compensation. Each regulated body must subscribe to this scheme. Each IFA must have indemnity insurance and must also have appoint a locum to look after their client interests if they are unable to meet their business obligations.
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