An SFC investigation revealed that Phillip Securities sold the American Pegasus Fixed Income Fund – Series II Segregated Portfolio to the four clients around August 2004, involving a transaction of about $819,000. The fund was then liquidated under Cayman Islands law in July 2011.
The fund had invested in senior life settlement insurance policies issued by investment grade insurance companies in the US. and was not a product authorised by the SFC. It was ultimately liquidated under Cayman Islands law in July 2011.
One of the clients had complained to the SFC alleging that Phillip Securities had mis-sold the fund to her.
The SFC then conducted an investigation and found that Phillip Securities failed to:
- conduct adequate due diligence on the fund before selling it to clients;
- provide adequate training and/or sufficient product information to its sales staff to ensure they fully understand the nature of the fund, the risks involved, and for which types of investors the fund would have been suitable; and
- Implement sufficient measures to ensure that its sales staff had assessed the suitability of the fund to clients, and to monitor and review the selling process.
“Phillip Securities failed to discharge its suitability and disclosure obligations owed to its clients when selling the fund, and clients suffered losses as a result of their investment in the fund,” the SFC said in a statement. The SFC said its decision had taken into account the fact that Phillip Securities has co-operated in resolving the disciplinary proceedings. Phillip Securities has also agreed to repurchase the fund from the clients at the principal amount less dividends plus interest if the amount had been invested in a 12-month fixed term deposit over the same period of time.
Phillip Securities had mis-sold the fund to her.