Verso Investment Management LLP · DRN-5467033

The complaint Mr M complains that he was advised to invest £500,000 into an investment called Red Rock by a partner at Verso Investment Management LLP trading as Whitefoord Wealth Management (Verso). The investment has failed and Mr M says that Verso should compensate him for his losses. What happened Mr M had been a client of Mr S - a partner and financial adviser at Verso - for a number of years and had investments in a Verso portfolio as well as a significant sum of money in a bank account. At the material times in this complaint, Verso was known as Whitefoord. But, for ease, I’ll refer to Verso throughout this decision. Mr M says that in the period from late 2018/early 2019, Mr S advised him to invest in an overseas property development business. At times this investment is referred to by the parties as Red Rock, but at other times as Dolphin or German Property Group. This was a property based collective investment/bond that purported to redevelop listed buildings in Germany and promised high returns. Whether Mr S gave advice about Red Rock and, if he did, the capacity in which the advice was given is a matter of dispute that I’ll elaborate on below. But it’s not in dispute that Mr S did have some involvement with Mr M’s investment together with another individual – Mr K – who appears to have been an introducer for Red Rock during 2018/2019. Verso wrote to Mr S’s clients on 7 March 2019 to say Mr S had decided to “retire” from Verso and that his clients would have a new point of contact, Ms A. Mr M says that he’d known that Mr S would be leaving Verso and had been told by Mr S that he wanted Mr M to become a client at his new firm. Mr M invested £500,000 in Red Rock on 25 March 2019 from cash in a personal bank account. Mr M still retained other investments in his Verso portfolio at that time. Mr M says he soon realised that Red Rock was a “scam” after speaking with a friend. And that on discovering this, in July 2019 he instructed Verso to liquidate all his Verso investment holdings to cash which Verso did. It appears that Mr M ceased to be a client of Verso at this point or shortly after. According to the regulator’s Financial Services register, Mr S ceased to be a Verso partner and adviser on 6 August 2019. Mr M has suffered a complete loss on the investment in Red Rock. And he complained to Verso in September 2023 about the advice he said he’d received from Mr S about the investment. He says he hadn’t complained earlier because he hadn’t realised he could do anything about recovering his loss.

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Verso didn’t uphold the complaint. It said that it held no records of any advice given about Red Rock and that any acts undertaken by Mr S in connection with the investment were outside the scope of his appointment as a Verso advisor. Mr M then referred the complaint to our service. He provided evidence in support of his complaint. This included the following: On 3/4 May 2018, Mr M and Mr S exchanged a series of text messages: Mr M: Hi mate can I still get that Skype with that guy Mr S: Remind me […], the property / investment guy? Mr M: Yes mate guy u said had good ideas Mr S: He’s better face-to-face, some of the property ideas are much better if you can see them, or at least pictures. When are you back next? Mr M:…Maybe June mate Mr S: Okay well when you know - let me know and we’ll get a date in for a meeting! Mr M: Ok mate sound Then there was a further message exchange on 10 August 2018: Mr M: …how all the investments going on? Now we went more medium? Mr S: You’ve been rewarded for taking more risk! Markets have performed well which means you have benefited! That won’t always be the case over every time period, but you’ve done better since the switch than you would have done! Mr M: That’s good is anything I should be doing that am not at moment Mr S: Well you’re holding too much cash - it should be doing “something” but we can look at that when you’re back. It’s probably better face-to-face! Mr M: In my [bank] account? Yeh I thought that Mr S: Yes - not a bad thing really, but just make it work harder. It’s that famous quote of “…make you’re money work whilst you sleep”, that’s the key. That’s what’s happening in your investments. We’ll look at this when we next meet. You’re a great saver, so you’ll be set for life now. Mr M: Ok mate be back November I should think On 15 November 2018, Mr K (the introducer I referred to above) emailed Mr M: Thank you for your time yesterday, it was good to meet you and I do hope you found the information I presented of some interest. If you have any questions or require any further information come back to me via email or call my mobile [… ]. As promised I have attached the corporate brochure for Red Rock Group which outlines the developments they undertake all over Germany. Clients investing through us will concentrate on the ‘listed building conversion’ projects.

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Obviously, it would be great to get you on board as a client and keep you in touch with the property market in general moving forward in the future. [Mr S] or myself will give you a call next week to see how you feel! On 11 December 2018 Mr M and Mr S exchanged another series of messages: Mr M: […] could u send them numbers over of how much I put in and how much it’s at now Mr S: I have sent you the figures and some charts / data in an email. Please have a ready through and give me a call so that we can chat through. I would be happy to pop down to see you to discuss. Speak soon. Mr M: Yeh gone down a bit .. when was last time it was up it was at 1.4 at some stage wasn’t it Mr S: Yes, it has been higher - the values that I gave you are just the Whitefoord investment, I will give you the other values tomorrow to give you that full picture. Everything is down at the moment though - it’s how investments markets have been. Mr M: Yeh been bad ain’t it. Needed to speak to u about the [Mr K] stuff how much I put into it Mr S: The good things is - we didn’t go any higher risk last time – we called that well! Mr M:Yes so we kept low? Now the time to double up tho right? Mr S: We discussed going higher - but we didn’t! Which was good. Yes, maybe now a good time to move up a notch. Happy to discuss [Mr K] whenever you want to. Mr M: Should I go 500 with him or with that 12 percent go higher. Mr S: 500 feels like a sensible amount. Mr M: Is stock market gonna get worse too? Mr S: I don’t know - why don’t we stay with where you are for now, then review when we have more clarity re Brexit? Can chat now if you’re free? Mr M: What u mean stay where we are? Mr S: Not sure what you mean lol! Mr M: U said stay where you are? Mr S: Sorry - I would do some with [Mr K] - yes. With what you keep in Whitefoord, I would go higher risk next year - but not now. Does that make sense? Mr M: Yes I get you Mr S: Are you doing 500 from cash?

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On 14 December 2018, Mr K emailed Mr M: I have spoken to [Mr S] and he has informed me that you have decided to invest in the German listed building projects which is great news. I have attached the ‘expression of interest’ form below and wondered if you could please give me a call to go through this. Hope you don’t mind but I will try you again tomorrow on the mobile!! This email attached an “expression of interest” form. On 2 March 2019, someone who appears to have worked with Mr K emailed Mr M to say: [Mr K has] asked me to forward the LNO onto you. Could you please sign page 2 and scan this back to me. Page one gives you the bank details to make your payment, if you could please confirm when is as been done, so that I can let Dolphin know. Any questions please let me know. When are you back in the UK, it so that we can get the original signed form to us? This email attached a “loan note offer”. The offer was for the amount of £500,000 for a term of five years, with interest to be paid at a rate of 10% per annum, with an additional 10% bonus at the end of the term. The loan note offer was addressed to a company that had just been set up for Mr M - “M Limited”. I’ll discuss this further below. Notwithstanding this, Mr M has provided a bank statement from a personal account showing he paid a total of £500,000 to Red Rock on 25 March 2019 using the bank details on the loan note offer. Verso reiterated to our service that it didn’t think it was responsible for Mr M’s complaint. Its submissions included reference to the fact that after Mr S had left Verso, information had come to light from a number of his former clients regarding his fitness and propriety which Verso notified directly to the Financial Conduct Authority (FCA) and his then employer through a regulatory reference. A copy of the reference included: A number of the clients advised by Mr S [… ] are sports professionals and in many cases also personal friends, who trusted their advice. These clients were introduced […] to a number of poorly performing unregulated investment and property schemes… From what we have uncovered to date, we have been left in no doubt that we would not consider him to be fit and proper for the purposes of FCA Rules and Guidance. One of our investigators looked at the evidence and thought Mr M’s complaint should be upheld. In summary, his assessment was that: • Even though there was no documented advice letter, the evidence provided by Mr M showed that Mr S was integrally involved in the Red Rock investment and likely advised Mr M to invest in it. So Mr S undertook regulated activities in connection with the matters Mr M was complaining about. • That even if Mr S didn’t have Verso’s actual authority to give advice about Red Rock, he acted as Verso’s agent with Verso’s apparent authority to give the advice, or alternatively, Verso was vicariously liable for the advice to Mr M.

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• Red Rock wasn’t a suitable investment for Mr M and Verso was responsible for paying him compensation for his losses. Mr M accepted the investigator’s assessment. But Verso didn’t. Verso’s position (in summary) is that: • Verso can locate no information on its systems about the Red Rock investment or even that it exists as an investment. • The investment in Red Rock occurred after Mr S ceased to be a Verso employee in March 2019 – albeit before Mr S’s notice period had expired. • Any advice provided by Mr S about Red Rock was outside the scope of his employment with Verso. • Verso is a wealth manager which provides conventional investment services only, typically in the form of investments in its “Collective Portfolio Service” or its “Discretionary Portfolio Service” either within standalone portfolios within general investment accounts, ISAs or SIPPs. Verso didn’t offer advice on unregulated investments – including Red Rock. • Verso received no remuneration of any kind from Red Rock. • Mr M invested in Verso’s conventional offerings and would have known that fact finds would be undertaken and suitability reports issued for any investment recommendations that Verso made. None of this was done for the Red Rock investment. • Verso hadn’t issued any quarterly valuations regarding Red Rock as would happen with genuine Verso recommended investments. So Mr M clearly knew that Red Rock wasn’t a Verso investment. • Any advice given by Mr S - and there is no evidence that any advice in the material sense was given by him - was not and did not purport to be advice given in his capacity as a representative of Verso. • To the extent that Mr S provided any advice in the material sense, Mr M did not believe that he was receiving advice from Mr S in the latter's capacity as a representative of Verso. • Mr S clearly didn’t conduct the alleged acts in any way linked to Verso. So the acts were not carried on “by way of business" by Verso - a legal requirement for Verso to be held to have undertaken regulated activities. • Mr M did not rely on any alleged advice given to him as advice given by Verso. • The evidence suggests that the investment in Red Rock was in fact effected by M Limited not Mr M. M Limited was never a client of Verso. Verso owed M Limited no regulatory or any other duty. And loss suffered in Red Rock was suffered by M Limited not by Mr M personally. • Mr K clearly played a dominant role in the Red Rock investment – and he had nothing to do with Verso. Mr K’s email to Mr M from November 2018 referred to getting Mr M “on board as a client” and other emails sent by Mr K did not reference

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Verso nor were copied to Verso. • Mr M wrote to Verso in July 2019 asking for his portfolio to be liquidated and said that he’d “taken advice” on this. This clearly wasn’t a reference to advice from Verso and so it was likely he was in receipt of advice from elsewhere. And Mr M’s instruction to liquidate investments didn’t relate to Red Rock which it surely would have if he believed that investment had been effected on the advice of Verso. • In Frederick and Others v Positive Solutions (Financial Services) Limited [2018] EWCA Civ. 431, the Court of Appeal found that the defendant firm was not vicariously liable for the torts of its agent and granted summary judgment for the defendant firm, notwithstanding that its portal had been used for arranging material transactions and that it had received commission on those transactions (neither of which are present here). In that case, the Court of Appeal concluded that to describe the material “activity as in any sense an integral part of the business activities of the respondent would be a complete distortion of the true position on the facts” and accepted that the description of the adviser as on “frolic of his own” or as “moonlighting” was an accurate description of the adviser's activities which were not carried out “as an integral part of the [defendant adviser's] business or for its benefit, but was moonlighting by” the adviser. That analysis clearly applies to the activities of Mr S here. • The effective suggestion in upholding Mr M’s complaint in full is that Mr M has no responsibility and did not contribute to his own losses. Such a conclusion can’t be correct. • The reliance on the suggested benchmark by the investigator for calculating redress was inappropriate given that Mr M clearly knew that Red Rock was high risk and he may well have suffered losses in such an investment in any event. The matter has now been passed to me to make a final decision. What I’ve decided – and why Jurisdiction Before I make a decision on the merits of any complaint, I must first be satisfied that the complaint falls within our jurisdiction. I need to check, by reference to the rules set out in the DISP section of the regulator’s Handbook and the legislation from which those rules are derived, whether it’s one we have the power to look at. I’ve considered all the evidence that’s been provided. Having done so, I’m satisfied this complaint is one the Financial Ombudsman Service has jurisdiction to consider. I want to make clear that I’ve taken account of all of Verso’s detailed submissions. But the purpose of my decision isn’t to address every point raised and if I don’t refer to something it isn’t because I’ve ignored it but because I’m satisfied that I don’t need to do so to reach what I think is the right outcome. This simply reflects the informal nature of this service as a free alternative to the courts. I’ve taken into account the Financial Services and Markets Act 2000 (FSMA), the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (RAO) and the DISP rules. I’ll set out some relevant detail relating to these below. Regulated activities

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An activity is a regulated activity if it is an activity of a specified kind that is carried on by way of business and relates to an investment of a specified kind (section 22 FSMA). Regulated activities are specified in Part II of the RAO and include: • advising on the merits of buying or selling a particular investment which is a security or a relevant investment (Article 53 RAO), • making arrangements for another person to buy or sell or subscribe for a security or relevant investment (Article 25 RAO). I’ll set more about the RAO below. The general prohibition Section 19 FSMA says that a person may not carry on a regulated activity in the UK, or purport to do so, unless they are either an authorised person or an exempt person. This is known as the “general prohibition”. At the time of the events complained about, Verso was an “authorised person” (also referred to as a “firm” in the regulator’s rules). This means it could carry out regulated activities without being in breach of the general prohibition. Mr S was neither an authorised person nor exempt from authorisation. This means if Mr S had carried out a regulated activity on his own behalf by way of business, he would have been in breach of the general prohibition. The approved persons regime The “approved persons” regime is set out in Part V of FSMA. Its aim is to protect consumers by ensuring that only “fit and proper” individuals may lawfully carry out certain functions within the financial services industry. At the relevant time, section 59(1) of FSMA said: (1) An authorised person (“A”) must take reasonable care to ensure that no person performs a controlled function under an arrangement entered into by A in relation to the carrying on by A of a regulated activity, unless the Authority approves the performance by that person of the controlled function to which the arrangement relates. As mentioned, Verso was an authorised person. The act of advising on investments was a controlled function. Verso arranged for Mr S to be approved by the FCA to perform the controlled function “CF30 Customer” from 1 February 2012 to 6 August 2019. CF30 was defined in terms that included “advising on investments … and performing other functions related to this such as dealing and arranging”. Mr S was also listed as with the “CF4” partner controlled function for Verso. The DISP Rules DISP 2.3.1R says we can:

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consider a complaint under the Compulsory Jurisdiction if it relates to an act or omission by a firm in carrying on…regulated activities…or any ancillary activities, including advice, carried on by the firm in connection with them. DISP 2.3.3G says that: complaints about acts or omissions include those in respect of activities for which the firm…is responsible (including business of any appointed representative or agent for which the firm…has accepted responsibility). (my emphasis) So, to decide whether Verso is responsible for this complaint, there are three issues I need to consider: • What are the specific acts Mr M has complained about? • Are those acts regulated activities or ancillary to regulated activities? • Did Verso accept responsibility for those acts? But before I address these questions, I’ll deal first with whether Mr M is the complainant or whether it should be, as Verso alleges, his company M Limited. The loan note offer sent to Mr M by email is addressed to M Limited. I can see from Companies House records that M Limited was only incorporated in February 2019 and other than the issue of share capital for the value of £1 has had no reported economic activity. When we asked Mr M about M Limited, he couldn’t recall why it was set up or for what purpose – and think it would have been done by Mr K and/or Mr S. Most importantly, the bank statement provided by Mr M shows that the monies used to fund the Red Rock investment were paid by Mr M personally. There is no evidence that M Limited made any payment to Red Rock. I don’t know why M Limited was incorporated. But I think ultimately Mr M personally invested £500,000 in Red Rock. He suffered the loss from this investment and I think any activities were undertaken with him personally – not M Limited. Mr M is therefore the eligible complainant and he had a client relationship with Verso - not M Limited. What is the complaint made by Mr M? Mr M says he received unsuitable advice from Mr S to make the investment in Red Rock in 2019. I think the complaint also reasonably encompasses all the arrangements for the investments. Are those acts regulated activities or ancillary to regulated activities? As a starting point, Verso doesn’t accept that there is sufficient evidence of an investment having been made at all. It’s true that we don’t have, for example, an investment certificate for the investment. So I understand why Verso has concerns. But, as explained above, we’ve been provided with a bank statement from Mr M showing a payment to an account with details that matches that of Red Rock emailed to Mr M in March 2019. So, I’m satisfied that an investment in Red Rock was made by Mr M.

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Our service has seen may complaints involving investments in Red Rock. Based on what I’ve seen, it appears to be an “Instrument creating or acknowledging indebtedness”, which is a specified investment under Article 77 of the RAO. So it’s the type of investment that’s capable of giving rise to a regulated activity – and Verso doesn’t dispute this. But did Mr S give Mr M advice about the investment and undertake a regulated activity? Verso says that, effectively as a threshold issue in determining whether a regulated activity has taken place, Mr S can’t be said to have been acting “by way of business” under section 22 FSMA and Article 4 of the RAO when undertaking the alleged acts. It says there can never have been any intention of the part of Mr S to arrange Red Rock through Verso or for Verso to receive remuneration in relation to that investment and so, to the extent that his activities were carried on "by way of business", they were clearly not carried on "by way of business" by Verso. I don’t agree that this threshold issue is not overcome. For reasons I set out below (see the section on Did Verso accept responsibility for those acts?), I think Mr S was holding himself out as a Verso financial adviser when dealing with Mr M. Verso is a financial advice firm. Regardless of whether Verso itself received remuneration, I think the acts being complained about here were being undertaken by way of business. Moving on to whether advice was given by Mr S, at the time, the regulated activity of advising on investments was defined in Article 53 RAO as follows: (1) Advising a person is a specified kind of activity if the advice is— (a) given to the person in his capacity as an investor or potential investor, … and (b) advice on the merits of his doing any of the following (whether as principal or agent)— (i)buying, selling, subscribing for or underwriting a particular investment which is a security…, or (ii) exercising any right conferred by such an investment to buy, sell, subscribe for or underwrite such an investment. (1A) Paragraph (1) does not apply to a person who is appropriately authorised except to the extent that they are providing a personal recommendation. (1C) Subject to paragraph (1D), a personal recommendation is a recommendation– (a)made to a person in their capacity as an investor or potential investor, or in their capacity as agent for an investor or a potential investor; (b)which constitutes a recommendation to them to do any of the following (whether as principal or agent)– (i)buy, sell, subscribe for, exchange, redeem, hold or underwrite a particular investment which is a security, structured deposit or a relevant investment; or (ii)exercise or not exercise any right conferred by such an investment to buy, sell, subscribe for, exchange or redeem such an investment; and (c)that is– (i)presented as suitable for the person to whom it is made; or (ii)based on a consideration of the circumstances of that person.

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(1D) A recommendation is not a personal recommendation if it is issued exclusively to the public. The PERG section of the regulator’s handbook sets out guidance from the FCA on the difference between advice and information. At the time, PERG 8.28.1G said: In the FCA’s view, advice requires an element of opinion on the part of the adviser. In effect, it is a recommendation as to a course of action. Information, on the other hand, involves statements of facts or figures. I’ve looked at all the evidence with the above in mind. I accept that there is none of the usual paperwork that is typical of professional financial advice, such as a fact find, risk assessment and recommendation letter. But this doesn’t mean advice wasn’t given. Mr M says that the advice was given in conversations and via text messages. We can’t be sure what might have been said in-person. But, like the investigator, I think what Mr M has consistently said about Mr S’s involvement in advising him is supported by the text messages, emails and wider circumstances. In particular • In the messages from May 2018, Mr S says that Mr K (the introducer of Red Rock) “had good ideas”. • In the text message exchange from November 2018, Mr S says that Mr M is holding too much cash in his bank account and that they could discuss this when Mr M was available with the aim that they would meet in November 2018. • The email from Mr K in December 2018 to Mr M shows that a meeting took place and that Mr S was involved in that meeting. • The text messages from December 2018 appears to show Mr M asking Mr S about the Red Rock investment and seeking his opinion of how much to invest. Mr S responds and states “I would do some with [Mr K] - yes”. The messages include Mr S telling Mr M that £500,000 was a “sensible” amount to invest. • The email from Mr K in December 2018 appears to show that Mr M’s decision to invest was made with Mr S, who in turn informed Mr K of the decision. • Mr M is clearly not an experienced investor and Mr S was his financial adviser. I think it’s likely that Mr M would have sought out and relied on Mr S’s expertise and advice when making an investment as large as £500,000. So, taking this all into account, I’m satisfied that Mr S gave advice to Mr M to invest in Red Rock. I think Mr S made a recommendation that it was suitable for Mr M (as a potential investor) to invest in Red Rock. And I think this was done with consideration to Mr M’s circumstances at the time and wasn’t simply the provision of information or facts and figures or issued exclusively to the public. So, in my view, the complaint involves the regulated activity of Mr S giving advice under Article 53 of the RAO. I also think that it’s more likely than not that Mr S undertook the regulated activity of making arrangements under Article 25 (1) of the RAO.

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The RAO says: Arranging deals in investments 25.— (1) Making arrangements for another person (whether as principal or agent) to buy, sell, subscribe for or underwrite a particular investment which is— (a) a security,… is a [regulated] activity. (2) Making arrangements with a view to a person who participates in the arrangements buying, selling, subscribing for or underwriting investments falling within paragraph (1)(a)… (whether as principal or agent) is also a [regulated] activity. 26. – There are excluded from article 25(1) arrangements which do not or would not bring about the transaction to which the arrangements relate. The FCA has issued guidance in the PERG part of its handbook. At PERG 2.7.7AG it says the following about Article 25(1): The activity of arranging (bringing about) deals in investments is aimed at arrangements that would have the direct effect that a particular transaction is concluded (that is, arrangements that bring it about). PERG 8.32.2 echoes this by saying: Article 25(1) applies only where the arrangements bring about or would bring about the particular transaction in question. This is because of the exclusion in article 26. In the FCA's view, a person brings about or would bring about a transaction only if his involvement in the chain of events leading to the transaction is of enough importance that without that involvement it would not take place. The second limb (article 25(2)) is potentially much wider as it does not require that the arrangements would bring about particular transactions. As well as (at the very least) encouraging Mr M to invest and agreeing the amount to be invested (which, as I as I’ve said above, I think amounts to advice), Mr S acted as an important intermediary between Mr M and Mr K. I think it’s likely that Mr S’s role as Mr M’s financial adviser, was of sufficient importance that without his involvement, the investment would not have taken place. Consequently the Article 26 RAO exclusion does not apply and I’m satisfied that Mr S undertook the regulated activity under Article 25(1) of the RAO. I accept that it's possible that Mr K was heavily involved in promoting the Red Rock investment and giving advice to Mr M. But that doesn’t preclude me finding that Mr S also gave advice and made arrangements. It’s not unusual for multiple parties to be involved in undertaking regulated activities in respect of the same investment. But I still need to determine whether Verso is responsible or accepted responsibility for Mr S’s activities. And I’ll consider this in the next section of my decision. Did Verso accept responsibility for those acts? In answering this question, I must first look at whether the acts undertaken by Mr S were done in his capacity as a Verso adviser or whether, as Verso allege, he did so in a personal capacity completely unrelated to Verso – and the acts were not undertaken by way of “business”.

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I’m satisfied that Mr S was acting in a Verso capacity because: • The FCA register shows Mr S held both CF4 Partner and CF30 Customer controlled functions at Verso until 6 August 2019. I’ve noted that Verso wrote to Mr M on 7 March 2019 to say Mr S was retiring and that Ms A would be his contact going forward. Verso says this means that Mr S can’t be said to have been acting in a Verso capacity from that point onwards – including when the Red Rock investment was made on 25 March 2019. My view is that the advice and arrangements here took place over the course of a period of time. Although Mr M made the payment of £500,000 to Red Rock on 25 March 2019, the advice to invest was before then – likely around December 2018 according to the text messages where £500,000 was agreed as the sum to be invested. So, I’m satisfied that the advice was given before 7 March 2019 and I think can reasonably be said that of the arrangements took place before then too. In any event, regardless of the letter 7 March 2019, Mr S remained a partner at Verso and he was approved by Verso to undertake regulated activities until 6 August 2019 – well after the Red Rock investment was completed. Although it's not key to my findings, I’ve also noted that Mr M has said he may not have received the 7 March 2019 letter at all as he was often abroad during this time. Furthermore, Mr M has said that even Ms A was aware that Mr S was discussing the Red Rock investment with him. • There’s no evidence that Mr S had a personal relationship with Mr M outside of the professional adviser/customer relationship that existed between them at Verso. • Mr S was exchanging messages with Mr M about the Red Rock investment at the same time as discussing Mr M’s investments with Verso. Mr M has explained that, as he was often abroad, receiving advice informally and without documentation from Mr S was not unusual. I accept that this was likely the case and that Mr S wouldn’t have known that risk assessments and suitability reports should have been provided to him by Verso. • There’s no documentary evidence that Mr S clearly differentiated his role as a Verso adviser and his role in giving investment advice on Verso approved products with the advice about the Red Rock investment. • I accept that Mr S didn’t account to Verso for the advice given to Mr M. Nor did he use Verso processes and documentation. It’s possible that this was because he may not have wanted to let Verso know he was involving clients in investments like Red Rock. I can’t be sure. But I don’t think this means that I think it more likely that he was advising Mr M in a non-Verso capacity and that his acts can’t be said to be have been undertaken “by way of business” as required under section 22 FSMA and Article 4 of the RAO. Verso itself reported concerns about Mr S to the regulator shortly after he left Verso. Verso said it discovered evidence that Mr S had misled Verso and clients including sports professionals (as Mr M was) about investments in unregulated property schemes. The regulatory referral doesn’t appear to directly relate to Red Rock, but I don’t think it’s unreasonable for me to infer from it that Mr S didn’t always conduct business with his clients conventionally or in the way Verso wanted, expected or

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required. • I’ve taken into account that Mr M instructed Verso to liquidate his Verso portfolio in July 2019. The email to Verso said: please can you proceed and send all my investment proceeds including my isa to my [bank] account. I have taken advice on this and do not want to discuss this further. Mr M says he gave the instructions to liquidate the portfolio because he’d heard from a friend that Red Rock was a “scam” and he’d lost trust in Verso. Mr M has also explained that he had no idea that he could complain about what had happened and only realised he could take steps to recover his losses in Red Rock in 2023 when he returned to the UK after being abroad for some time. Verso says Mr M’s instructions to liquidate the portfolio without any reference to Red Rock is evidence that he understood that Verso had nothing to do with that investment. I don’t draw the same conclusion as Verso. I think it’s reasonable that Mr M thought he’d lost his investment in Red Rock and wanted to move all his other investments away from Verso. He probably ought to have complained at that point. But, in all the circumstances, I don’t think Mr M’s actions (or inactions) in July 2019 mean that Mr S was more likely than not acting in a non-Verso capacity when advising and arranging the Red Rock investment. Overall, I’m satisfied that Mr S was holding himself out as a Verso adviser in his dealings with Mr M in relation to the Red Rock investment and he (and therefore Verso) was doing so by way of business. Nevertheless, Verso isn’t responsible for everything that Mr S did. I’ve looked at common law agency principles and vicarious liability to ascertain whether Verso is responsible for Mr S’s acts. Agency The common law agency principle of actual authority would apply if there was some evidence that Verso (the principal) had given its actual authority to Mr S (the principal’s agent) to undertake these acts. As mentioned above, Verso’s position is that: • Verso only provides a “limited range of services, financial advice and portfolio management via model portfolios within either standalone accounts, ISA’s or SIPPs”. • Mr S was not authorised to deal in non-regulated investments and was a restricted advisor. Verso has provided various employment/partnership documents that it considers supports this position. Like the investigator before me, I don’t think these specifically limit the authority granted to Mr S to provide financial advice. Rather, they contain high-level requirements,

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such as acting with integrity, due care, skill and diligence, and complying with the partnership’s rules. It is also notable that authority may also be implied. In Hely-Hutchinson v Brayhead [1968] 1 QB 549, it was held that: [A]ctual authority may be express or implied. It is express when it is given by express words, such as when a board of directors pass a resolution which authorises two of their number to sign cheques. It is implied when it is inferred from the conduct of the parties and the circumstances of the case, such as when the board of directors appoint one of their number to be managing director. They thereby impliedly authorise him to do all such things as fall within the usual scope of that office. Actual authority, express or implied, is binding as between the company and the agent, and also as between the company and others, whether they are within the company or outside it. Mr S was a partner at Verso undertaking investment advice. I think it can be implied from his appointment as a partner that he could give investment advice as he saw fit on any type of investment. However, I accept that Mr S didn’t account to Verso for the advice. And I don’t think he can reasonably be said to have acted in Verso’s interests - which is a requirement for actual authority - when undertaking the regulated activities being complained of by Mr M. So I don’t think Mr S can be said to have acted with the actual authority of Verso. In an agency relationship, a principal may limit the actual authority of his agent. But if the agent acts outside that actual authority, a principal may still be liable to third parties for the agent’s acts if those acts were within the agent’s apparent authority even if the agent hasn’t acted in the principal’s interests. The essence of apparent authority (sometimes called ostensible authority) is not concerned with what was actually agreed between the parties (for example by way of the agency contract), but rather, how the relationship between those parties appeared to third parties. In this complaint, I’m concerned with how the relationship appeared to Mr S based on representations by Verso. The legal elements for a finding of apparent authority are: • A representation by the “principal” that the “agent” is authorised to perform the acts in question on its behalf. This may be either of a specific nature or, more commonly, a general “holding out” of the agent that may be by conduct. • Reasonable reliance by the complainant on the representation when entering into the relevant transaction. I don’t think there can be any real dispute that Verso held Mr S out as a partner and investment financial advisor. He would also have been provided with Verso material in order present himself in this manner. And Mr S was able to become Mr M’s financial investment adviser as a result of this. As a partner, I think there was an implicit representation that Mr S was authorised to give advice about any investment he did actually give advice about – including Red Rock.

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It was in Verso’s interests that consumers such as Mr M relied on the overall representations and I have no doubt that he did so here. Put another way, if Verso had made it known to Mr M that Mr S was not authorised to give advice about Red Rock, I don’t think he would have proceeded with the investment. As a result, I think Verso is responsible for the act complained about by way of apparent authority. Vicarious liability If I’m wrong about the agency point above, I think Verso is still vicariously liable for the advice and actions of Mr S. What is vicarious liability? Vicarious liability is a common law principle of strict, no-fault liability for wrongs committed by another person. Not all relationships are capable of giving rise to vicarious liability. The classic example of a relationship which can give rise to vicarious liability is the employment relationship. The law on vicarious liability was recently clarified and summarised in Trustees of the Barry Congregation of Jehovah's Witnesses v BXB [2023] UKSC 15. Broadly, there is a two-stage test to decide whether vicarious liability can apply: • Stage one is to whether the relationship between the defendant and the tortfeasor was one of employment or akin to employment. • Stage two is to ask whether the wrongful conduct was so closely connected with acts that the tortfeasor was authorised to do that it can fairly and properly be regarded as done by the tortfeasor while acting in the course of the tortfeasor’s employment or quasi-employment. As starting point in my analysis of the application of the tests to this complaint, I reiterate that I’m satisfied that Mr S was purporting to act on behalf of Verso when undertaking the acts relating to this complaint. I don’t think he gave investment advice or made the arrangements in a recognisably independent capacity when dealing with Mr M. I think he was more likely holding himself out as a Verso adviser. Mr S’s activities in relation to Mr M were undertaken in the context of an ongoing client/financial adviser relationship. His acts in respect of Mr M and Red Rock were intertwined with his role as Verso adviser. As a result, I think this complaint can be differentiated from that in Fredericks where it was held that the adviser’s acts could be said to be described as a “frolic of his own” or as “moonlighting” when he used his principal’s portal to make mortgage applications for people to make investments in his own fraudulent property scheme. The stage one test Mr S was a Verso partner and, as such, I think there is no difficulty in holding that Mr S was in an employer-employee type relationship. There is legal precedent that vicarious liability can apply to partners in partnerships (Dubai Aluminium Co Ltd v Salaam [2002] UKHL 48). So the stage one test is satisfied here. The stage two test

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I accept that there are factors that point to Mr S’s acts as being removed from his role as a Verso adviser. He did not follow Verso processes nor did he account to Verso for any commission he may have earned. However, I think the stage two test is met because the conduct of Mr S was so closely connected to what he was authorised to do by Verso. • Mr S was in a relationship with Mr M as a regulated financial adviser. Mr S was only able to portray himself in this way because of his role as an adviser and partner with Verso. • In giving investment advice and making arrangements, Mr S carried out business activities of a type that had been specifically assigned to him by Verso, and of a type that he could only (lawfully) perform on Verso’s behalf. • In recommending and arranging Red Rock – I think Mr S was carrying out a type of activity that Verso allowed him to carry out. Red Rock was a security under the RAO. Although it was esoteric/non-standard investment, regulated investment advisers can and do give advice and make arrangements for such securities. • Even if Mr S failed to account to Verso for the advice, that goes to the manner in which Mr S gave the advice – not the actual activity of giving investment advice. • The fact that Mr S may have been acting for his own benefit and not Verso’s does not prevent Verso from being vicariously liable for Mr S’s actions. The courts have found that vicarious liability can apply even where an employee has abused his position in a way that cannot possibly have been of benefit to his principal. So I think Verso is vicariously liable for Mr S’s actions in respect of the advice to Mr M. Conclusion on jurisdiction We have jurisdiction to consider this complaint against Verso as it is responsible for the acts of Mr S. What I’ve decided – and why I’ve considered all the available evidence and arguments to decide what’s fair and reasonable in the circumstances of this complaint. When considering what is fair and reasonable in the circumstances, I need to take account of relevant law and regulations, regulator’s rules, guidance and standards, codes of practice and, where appropriate, what I consider to have been good industry practice at the relevant time. A foundational principle is that firms must act in the best interests of their clients. I’m satisfied the complaint should be upheld and that Mr S didn’t give suitable advice or otherwise act fairly when arranging the Red Rock investment. I’d have expected any adviser recommending or arranging an investment in Red Rock to have undertaken significant due diligence on it before doing so. Red Rock was an extremely high risk, unregulated overseas based property development. I think it’s reasonable to say that Red Rock would be unsuitable for most people. There’s no evidence that Mr S made Mr M aware of the risks associated with it.

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Verso says that Mr M should take some responsibility for the loss as he likely knew Red Rock was a high-risk investment. Even if he may have had high net worth, I've seen nothing to suggest that Mr M would have gone ahead and made such a large investment if he had been advised appropriately about the risks associated with Red Rock. I think he was very reliant on Mr S and £500,000 likely formed a significant part of Mr M's wealth at the time. Even if Mr M had been prepared and was able to take some risks, he should have been advised to do so by investing in diversified regulated funds – not Red Rock. In reaching this conclusion, I’ve taken into account that other individuals not connected to Verso may have given advice and made arrangements for Mr M’s Red Rock investment. But I’m satisfied that Mr S played a significant role. He was Mr M’s financial adviser. And I’m of the view that if Mr S acted in Mr M’s best interests, the investment in Red Rock wouldn’t have proceeded. Putting things right In assessing what would be fair compensation, I consider that my aim should be to put Mr M as close to the position he would probably now be in if he had not been given unsuitable advice. I take the view that Mr M would have invested differently. It is not possible to say precisely what he would have done differently. But I am satisfied that what I have set out below is fair and reasonable given Mr M's circumstances and objectives when he invested. What must Verso do? To compensate Mr M fairly, Verso must: • Compare the performance of Mr M's investment with that of the benchmark shown below and pay the difference between the fair value and the actual value of the investments. If the actual value is greater than the fair value, no compensation is payable. • Verso should also add any interest set out below to the compensation payable. • Pay to Mr M £300 for the distress caused to him by the total loss of the investment. I think such a loss would have been a shock to him and this additional sum is to compensate him for that. Income tax may be payable on any interest awarded. Investment name name Status Benchmark From ("start date") To ("end date") Additional interest Red Rock Understood to have been a complete loss FTSE UK Private Investors Income Total Return Index Date of investment Date of my final decision Not applicable Actual value This means the actual amount payable from the investment at the end date. As mentioned, I think Mr M has likely suffered a complete loss.

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However, if that isn’t the case, and if at the end date the Red Rock investment is illiquid (meaning it could not be readily sold on the open market), it may be difficult to work out what the actual value is. In such a case the actual value should be assumed to be zero. This is provided Mr M agrees to Verso taking ownership of the Red Rock investment, if it wishes to. If it is not possible for Verso to take ownership, then it may request an undertaking from Mr M that he repays to Verso any amount he may receive from the investment in the future. Fair value This is what the investment would have been worth at the end date had it produced a return using the benchmark. Any additional sum paid into the investment should be added to the fair value calculation from the point in time when it was actually paid in. Any withdrawal from Red Rock should be deducted from the fair value calculation at the point it was actually paid so it ceases to accrue any return in the calculation from that point on. If there is a large number of regular payments, to keep calculations simpler, I’ll accept if Verso totals all those payments and deducts that figure at the end to determine the fair value instead of deducting periodically. Verso must pay the compensation within 28 calendar days of the date on which we tell it that Mr M accepts my final decision. If Verso fails to pay the compensation by this date, it should pay 8% simple interest per year on the loss, for the period following the deadline to the date of settlement. Why is this remedy suitable? I have decided on this method of compensation because: • Mr M wanted Income with some growth and was willing to accept some investment risk. • The FTSE UK Private Investors Income Total Return index (prior to 1 March 2017, the FTSE WMA Stock Market Income total return index) is a mix of diversified indices representing different asset classes, mainly UK equities and government bonds. It would be a fair measure for someone who was prepared to take some risk to get a higher return. • Although it is called income index, the mix and diversification provided within the index is close enough to allow me to use it as a reasonable measure of comparison given Mr M's circumstances and risk attitude. My final decision Where I uphold a complaint, I can make a money award requiring a financial business to pay compensation of up to £190,000, plus any interest and/or costs that I consider appropriate. If I consider that fair compensation exceeds £190,000, I may recommend the business to pay the balance. Verso Investment Management LLP trading as Whitefoord Wealth Management should

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provide details of its calculation to Mr M in a clear, simple format. Recommendation: If the amount produced by the calculation of fair compensation exceeds £190,000, I recommend that Verso Investment Management LLP trading as Whitefoord Wealth Management pays Mr M the balance plus any interest on that amount as set out above. This recommendation is not part of my determination or award. It does not bind Verso Investment Management LLP trading as Whitefoord Wealth Management. It is unlikely that Mr M can accept my decision and go to court to ask for the balance. Mr M may want to consider getting independent legal advice before deciding whether to accept this decision. Determination and award: I uphold the complaint. I consider that fair compensation should be calculated as set out above. My decision is that Verso Investment Management LLP trading as Whitefoord Wealth Management should pay Mr M the amount produced by that calculation – up to a maximum of £190,000 (including distress or inconvenience but excluding costs) plus any interest set out above. If Verso Investment Management LLP trading as Whitefoord Wealth Management does not pay the full fair compensation, then the illiquid investment (if it still exists) should be retained by Mr M. This is until any future benefit that he may receive from the investment together with the compensation paid by (excluding any interest) equates to the full fair compensation as set out above. Verso may request an undertaking from Mr M that either he repays to Verso any amount Mr M may receive from the investment thereafter or if possible, transfers the investment at that point. Provided compensation is paid in full, the payment of redress may be conditional upon Mr M giving an assignment of any claim he may have against third parties in connection with the investment. The terms of the assignment should require Verso to account to Mr M for any amount it recovers that exceeds the compensation it pays to Mr M. Verso will need to meet any costs in drawing up the assignment. Under the rules of the Financial Ombudsman Service, I’m required to ask Mr M to accept or reject my decision before 20 February 2026. Abdul Hafez Ombudsman

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