In Financial Conduct Authority v John Cecil Anderson, Kenneth Alan Peacock and Kautilya Nandan Pruthi [2014] EWHC 3630 (Ch) the High Court gave directions for the allocation of monies to depositors in Ponzi schemes pursuant to a restitution order.

The Court held that as the shortfall between the actual losses and amount recoverable was substantial, it was necessary to limit the class of qualifying persons to depositors who had suffered loss in capital investment.

In 2010 the Court gave summary judgment on the case, finding that the defendants Anderson, Peacock and Pruthi had been carrying on a regulated activity by accepting deposits without being authorised or exempt.

The FCA applied for restitution orders under section 382 of the Financial Services and Markets Act 2000 (FSMA).

The Court suggested that the appropriate sums to be paid by the three defendants were £13 million, £11 million and £90 million respectively.

All three defendants were bankrupt and the trustee in bankruptcy could only pay approximately £11,000, £122 and £880,000 respectively, resulting in a significant shortfall in the amounts that the depositors could recover.

The FCA subsequently applied for directions under section 382 FSMA regarding the distribution of monies to the qualifying persons.

The Court commented that section 382(3) FSMA gives no guidance as to how the discretion to give directions is to be exercised but noted that it should have regard to various factors including fairness and the purpose of the payment from the defendants to the FCA under the restitution order. Under section 382(8)b FSMA the category of qualifying persons can be extended to those who have lost a profit as well as suffered a loss.

In light of the substantial shortfall between the actual losses and amount recoverable, the Court limited the class of qualifying persons to depositors who had suffered actual loss who were considered to be more deserving of compensation.

In addition, the Court adopted a simple method of distributing the sums due to avoid undue cost.

Copies of the;

judgment: http://bit.ly/1xbBnxM

Court Order: http://bit.ly/1p5Xurx