Ex-JC Flowers executive given FSA fine and ban (Jan 2012)

- by Kelly Richards

The FSA banned and fined an ex-JC Flowers executive £2.86 million due to his involvement in implementing a fraudulent invoicing scheme. The scheme allegedly bagged the executive around £1.4 million. Most of the cash came from a company owned by a private equity fund owned by the company for which he worked. The fictitious invoicing scheme was deemed to be illegal, and the FSA now want to claw some of the money back.

The financial crisis made it easier for such a scheme to exist within the current framework. Mr Sinha claims it was one of the main reasons for setting up the fraudulent activity. The regulator found that Mr Sinha’s financial status declined somewhat during the worst periods for the economy. It was because of that he borrowed vast amounts of money to finance investments that turned sour. As a result of that, he began to issue invoices to the company within the JC Flowers empire and allowed fees to be paid directly to him. Although he was not entitled to the money, It seems his employer was unaware of the events.

Mr Sinha is accused of misleading management by saying the payments made were approved by JC Flowers UK. That was a lie. The FSA has found no records or evidence that suggest any authorisation had been given whatsoever. Alongside his hefty fine and ban, Mr Sinha is no longer allowed to accept any role within the financial services industry. That is a welcome revelation for all the hard working and honest people who help to keep this profession above board.

The FSA’s director of enforcement and financial crime was quoted as saying:

“The party involved exploited his position of trust as chief executive to illegally obtain sums of money for his personal benefit. He engaged in a dishonest, deliberate and sustained course of misconduct that lasted for a long time. Such behaviour has no place in the financial services industry, and we will stamp it out.’

JC Flowers has a long history of making successful investments and creating huge profits from their work. So, it comes as somewhat of a shock that someone working for their brand was allowed to make such monumental errors of judgement. There is no doubt Mr Sinha fully understood his actions, and the risk he was taking. For that reason, few people feel sorry for the man. If we are to take anything from this series of events, it must be that the FSA need to work harder to stamp out such misconduct within the industry.

Why did it take so long for the FSA to act? It would seem there are certain processes in place that make it difficult for the Financial Services Authority to take action in a speedy manner. Evidence must be gathered, and legal issues must be checked before an individual of this nature can be prosecuted. Indeed, that is also one of the main reasons some less than honest short term loan companies are still thriving. The situation needs a remedy, but it seems cash injections are the only thing that will improve the FSA. They just require more funding.

Affordable lenders criticise the FSA for allowing almost criminal firms to operate for years before they take action. They believe it is unfair for the public, and their business to allow such corporations to exist. People need a responsible lender when they are in the worst financial situations, but there are too many cowboys on the market today. The FSA admits many failings when dealing with payday loan companies, and just as many dealing with investment firms.

How do they plan to make things better in the future? Unfortunately, London police have already said they have no intention to investigate the JC Flowers case as a criminal matter. Although the City of London’s police asked the executive to assist a formal inquiry into the events, he refused. When that happens, most rational people will expect them to put measures in place that left him with no other choice. However, they simply accepted his refusal and moved on. That is something that needs to change moving forward.

With more funding and support from police, the FSA could clean the industry up in a matter of years. They simply require the right tools and authority for the job. At the current time, many people working for the FSA say they are constantly being presented with brick walls. Stumbling blocks are placed in their path during every case they investigate. The red tape needs to disappear if we are ever to make the improvements required to bring the industry back to a decent state. At the current time, there are little consequences to running dishonest schemes. That means there is little incentive for executives to operate in a respectable manner.

While fines and bans might be a good start, they are a long way off fixing the issue. No executive will worry too much about their fraudulent schemes coming to light if the fines do not accurately reflect the dishonest profits made. It is not yet known how much money Mr Sinha made from his involvement in the invoicing racket, but most experts suspect it is a lot more than the amount of his fine. People working in the financial services industry are more than knowledgeable about the best ways of hiding capital and income from the authorities.

Will we see huge changes during the next couple of years that help to stamp out such criminal behaviour? That remains to be seen. The only thing we know for certain is this new wave of bans and fines is a step in the right direction. At the current time, the FSA is funded solely by fees charged to the financial service industry. Many people think that needs to change. If they started to obtain frequent cash injections from the government, they could expand their operation and meet public demand for justice.

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About The Author
Kelly Richards
Kelly Richards is the founder of the Cashfloat blog and has been working tirelessly to produce interesting and informative articles for UK consumers since the blog's creation. Kelly's passion is travelling. She loves her job because she can do it from anywhere in the world! Whether inspiration hits her while sitting on the balcony of a French B&B, or whether she is struck with an idea in a roadside cafe in Moscow, she will always make sure that the idea comes to fruition. Kelly's insights come from her knowledge gained while completing her degree in Economics and Finance as well as from the people she meets around the world. Her motto is: Everyone you meet has something valuable to teach you, so meet as many people as you can!
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