Midas Financial Solutions Collapse

Richard Thomson Excerpts

Tuesday 22nd March 2022 Westminster Hall

[Richard Thomson (Gordon) (SNP)]

It is a pleasure to serve once again under your chairmanship, Mr Stringer, and to follow the hon. Member for Strangford (Jim Shannon). I wondered at points if he was looking over my shoulder at some of the things I was planning to say, so I will just have to find a different way of expressing them. I commend the right hon. Member for Orkney and Shetland (Mr Carmichael) for his determination in pursuing justice, truth and better outcomes and to prevent such things from occurring again, which he has demonstrated throughout his pursuit of this issue.

The main villain of the piece is obviously Alistair Greig, the managing director of Midas Financial Solutions. After the scale of his dishonesty was revealed in court, he was dubbed by the Aberdeen Press and Journal as the “king of the swindlers”. He defrauded over 180 victims, or 297 according to the Financial Conduct Authority, of close to £13 million. Most, but not all, were from the north-east of Scotland, and it was one of Scotland’s largest ever fraud cases, taking over two years to investigate.

Many investors—business people, retirees and young people starting out in life—were told their investments had grown, which encouraged them to invest even more, all the time believing that their money was safely tucked away and gathering interest. The only problem, as we now know, is that it was not. Their investments were not growing in the sense that we might understand; rather, they were unwittingly part of a Ponzi scheme, using the deposits of later clients to repay earlier deposits with interest and therefore burnishing the outward reputation of the scheme.

Self-evidently, all fraud is dishonest, but what really takes the breath away is the sleekit nature—don’t worry, Hansard, I will send a note later about “sleekit”—of how this particular fraud was perpetrated. In setting himself up as a gatekeeper, Greig pretended that he had access to a special deposit account at the Royal Bank of Scotland. That was pitched as being beyond the means of ordinary investors to access, except through him. He said that he could make that opportunity available to his more valued customers, taking people in with that confidence trick.

Greig exploited his existing, justified reputation and long-established relationships, including with those he worked beside and those he knew socially and professionally. One person close to the investigation said Greig

“pitched the interest rate at somewhere between plausible and too good to be true.”

He exploited those relationships to draw in further unwitting investors.

In the north-east of Scotland and, I am sure, in other parts of these islands the personal relationship still counts for a great deal, as does personal trust, a personal referral and word of mouth. It is that that makes this scheme so particularly invidious, given the way that it managed to spread through so many investors. I have no doubt that this case has directly and indirectly resulted in illness and great distress, contributed to people’s early deaths and caused divisions between families where recommendations to invest were made from one family to the other.

What did Greig get out of it himself? He spent the money on classic cars, exotic holidays and VIP days at Wimbledon and the British grand prix, living a lifestyle few of us could ever dream of, all off the back of other people’s hard-earned money. It is quite something to reflect that it took 95 victims to bring a civil case against Mr Greig before they were able to secure a single penny of compensation.

May 21 2020 is an auspicious date in these events, because that was when the criminal case came to a conclusion at the High Court in Edinburgh and Lord Tyre sentenced Greig to 14 years’ imprisonment. In his sentencing remarks, Lord Tyre observed that Greig was

“guilty of committing a fraud on an enormous scale.”

The thing about committing a fraud on an enormous scale is that the overwhelming evidence that persuaded the jury to convict him unanimously did not just appear instantly but accumulated over time, in full sight of those who should have been offering protection to the consumers involved. It is impossible to avoid the conclusion that those investors were very poorly treated by the public bodies that should have been looking out for them. In particular, the financial regulators had three big chances to halt this.

The first opportunity was when Greig was removed from a panel of building society mortgage advisers after concerns were raised over his personal integrity. Accord Mortgages, which was part of the Yorkshire Building Society, threw him off their panels after accusing him of mortgage fraud in 2008. That was the first opportunity to investigate Greig’s fitness to practise. Had that concern been acted on then, he could have been removed quite legitimately from being involved in any kind of controlled function, looking after investors’ money. According to the FSA, that information was shared with the relevant internal stakeholders, but the matter was not further investigated and the FSA closed its record on 10 April 2008, giving the reason that the risk was mitigated.

In investigating the complaint, the FCA declared in its decision letter of 26 April 2019 that, reflecting on this, it was

“satisfied that the way in which the Authority dealt with the email was reasonable, proportionate and in line with the risk appetite at that time.”

The buzzwords radiate off the page, but it is quite clear that something went badly amiss in failing to appreciate the significance of why Greig was removed from the panel. Fundamentally, either Greig was a fit and proper person or he was not. Sadly, and now far too late, we know the answer to that question. In fact, only two of Greig’s documented victims had money invested in his scheme before the FSA missed this first opportunity and we can all see what would have been avoided had more stringent and proportionate action been taken to effectively mitigate that risk.

The second opportunity came after Mr Greig lied—there is no other word for it—to the Financial Services Authority in an email. As part of an application for a CF30 designation, which is an authorisation from the authority to give advice and to deal with and arrange investments on behalf of a customer, he claimed:

“I can confirm I have never been removed from a mortgage panel.”

That was when Greig was reapplying for a status that he had voluntarily withdrawn just a few months earlier, in December 2011. To give some credit, the application was referred to what was called a non-routine team within the regulator because of the intelligence already held on Greig dating back to 2008. Before that application was determined by the case officer, Sense, the appointed representatives, withdrew it, citing an internal movement of staff as the reason. Prior to closing the case, the intelligence officer concerned compiled a detailed intelligence report. It stated that no determination had been made of Mr Greig’s honesty, integrity and reputation to hold the designation to deal with clients’ money, and that a full assessment should take place in the event of future applications being received. Again, even at this juncture, either Mr Greig was a fit or proper person or he was not. Sadly, and again far too late, we now know the answer to that.

The third and most serious opportunity to halt the scheme was in October 2012. An email was received by the Financial Conduct Authority from a whistleblower about what appeared to be deposit taking by one of Midas’s employees. A case was opened and referred to the unauthorised business department, which analysed the case and came to the conclusion that the activity in question was carried out by Midas rather than the individual. Given that Midas was an appointed rep of Sense, an authorised entity, the unauthorised business department took the view that this was a case to be taken forward by the supervision department. In February 2013, a referral email was sent to the firm contact centre, whatever that is, copying in the supervision team—there are plenty of emails flying about—explaining the unauthorised business department’s decision and stating that no further action would be taken by them. While the standard procedure at that point would have been for the contact centre to open a case and then allocate it to the supervision department, no case was ever opened: it fell between the cracks.

It is impossible to avoid the conclusion that the regulator seriously dropped the ball there. In doing so, its negligence allowed the scheme to continue until 2014; it missed a huge opportunity to prevent significant harm being perpetrated by someone it had already had two opportunities to halt, knowing that he was unfit to steward the finances of others.

As the right hon. Member for Orkney and Shetland said, some measure of compensation was paid out six years on. However, not all investors have got their money back. In some cases, that is because compensation is capped at £85,000, under the Financial Services Compensation Scheme. Sadly, some people lost a great deal more than the £85,000 threshold. While the primary guilt here lies with Mr Greig, and Greig alone, that does not absolve the regulators of their manifest failings in this case. Nor does his lengthy custodial sentence restore the finances or heal the hurt of those victims affected.

It is understandable that, having been let down by the regulator and short-changed by what the safety net compensation scheme was likely to yield, investors would seek redress where they could. Although their pursuit of the Sense Network was unsuccessful, it is obvious that the judges who sat on the case had sympathy with the action. Lord Justice David Richards, alongside Lord Justice Hamblen and Mr Justice Snowden, said in July 2019:

“It is accepted, at least for the purposes of this case, that the appellants have been the victims of a callous fraud. On any footing they have suffered severe losses.”

I agree with what the right hon. Member for Orkney and Shetland and the hon. Member for Strangford have said: it is manifestly unfair that the 95 of Greig’s victims who brought the civil case in order to unlock some measure of compensation are receiving the same compensation as those who did not—given that they have taken on the burden of legal costs for every victim. That is not to begrudge anyone who got compensation who was not involved in the legal action; simply, it has created two classes of victim. In anyone’s eyes, that is surely wrong. It raises the question of why on earth it was necessary to pursue the civil case in order to enable access to the Financial Services Compensation Scheme.

I have drawn some conclusions from this case. In my view, the regulators are not there to protect people from their own greed or recklessness, but I defy anyone to say that those who were the victims in this case could be guilty of either of those vices. Bluntly, they were ordinary folk, looking for the best home for their savings in a turbulent financial environment, who had the great misfortune to be directed towards someone who had become thoroughly unworthy of their trust. There is an issue to be examined here: the individual investors, who could see the outward respectability of Midas and saw it as an appointed representative of a presumably respected financial services group, which was regulated with the industry, where everyone presumably had the appropriate professional indemnity insurance in place, were entitled to feel, even by association, that their money was in safe hands.

However you choose to slice and dice this, Mr Stringer, it is clear that the regulation has failed. Whether you view that as a systemic failure or, more charitably, as a series of individual and isolated failures, the system should surely, at all stages, have been much more resilient—even to somebody as determinedly dishonest as Mr Greig proved himself to be. It exposes our financial services regulation as being prescriptive, box-ticking and silo-orientated—big on paperwork and self-assurance. Despite, no doubt, the best efforts of some within the organisation, it was also, sadly, desperately short on effectiveness.

Economic crime accounts for 40% of all crime in this country, yet only 1% of our crime-fighting resources are devoted to tackling it. Research from Spotlight on Corruption shows that the Government spend just 0.042% of GDP to tackle economic crime, despite its costing the UK at least the equivalent of 14.5% of its annual GDP. The National Crime Agency budget has declined, in real terms, by 4.5% over the past five years. Bluntly, if we are to create a regulatory environment within which investors can operate with assurance—no matter how big or small they happen to be—the Government must be absolutely committed to making it work and funding it appropriately.

Those affected have, sadly, now received all that they are ever likely to. While Greig is the guilty party, I am bound to say that others also carry some culpability. The regulation of institutions—big and small—has fallen sharply over recent years. However, without more effective regulation, Midas investors are unlikely to be the last to be taken advantage of by the deeply unscrupulous. I look to the Minister to answer on how we can make that regulatory environment safer for all of us who invest.