Misleading investors — the Royal Court of Jersey delivers an important judgment

In Jersey Financial Services Commission v Alternate Insurance Services Limited & Others [2007] JRC048, the Royal Court of Jersey (commissioner R Southwell QC and jurats Le Brocq and Georgelin) delivered a very significant judgment concerning certain of the provisions in the Financial Services (Jersey) Law 1998. The 150-page judgment clarifies the law concerning making misleading statements to investors and confirms that court has very wide powers to compensate investors. The court also made observations that raise the possibility of further regulation for financial services businesses.

The Jersey Financial Services Commission (JFSC) brought civil proceedings under Article 26 of the 1998 law on behalf of 28 investors against Alternate Insurance Services Ltd and against its sole shareholder and a director. The investors were financially unsophisticated individuals with limited means. Some were particularly vulnerable, such as a widow with three young children or a man with a family who had become unable to work due to a degenerative spinal condition.

Alternate was regulated by the JFSC and held a Class D licence, allowing it to advise on investments but not handle client assets. All the investors were advised by Alternate to buy a portfolio of traded endowment policies (TEPs) partly funded by their own savings and partly by a bank or building society loan. The transactions were known as traded endowment portfolio policies (TIPPs) and were arranged with third-party providers. The TIPPs involved ‘gearing’ — i.e. an increase of investment risk by borrowing money to purchase the investment. Generally, the investors did not understand the documents they were signing…

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