Unacceptable Sales Practices

Mis-selling cases for funds or structured products are common in HK but not so much for stocks. The reason is that the investors have too many channels to get tips on stocks. It is more difficult to prove that a person is misled by one particular broker to buy a stock. The following UK case about some unacceptable sales practices of a stockbroker is interesting.

Hoodless is a stockbroker specialising in Alternative Investment Market ("AIM", just like GEM in HK) of London Stock Exchange. FSA recently fined Hoodless £90,000 for unacceptable sales practices when selling shares in a company called Knowledge Technology Solution (KTS).

KTS is a technology and software solutions company traded on AIM, providing real time price information system called "QuoteTerminal" for market professionals. Hoodless signed a contract with KTS for supply of QuoteTerminal, and also bought some KTS shares as principal. Subsequently Hoodless sold KTS shares to its customers before KTS announced the signing of the supply contract.

It is unclear whether Hoodless' selling of KTS shares is insider dealing because the supply contract with a small broker may not be regarded as price sensitive information. But Hoodless was challenged by FSA for disclosing such non-public information to its customers as a "sales aid" when selling KTS shares.

In addition, Hoodless was found to have "pushed" customers to buy KTS shares when they were not ready to do so, or buy more shares than they appeared to want. In one instance, Hoodless' broker solicited a customer (a doctor) whilst he was at work in a hospital. The doctor said he did not want to make a decision until he could concentrate on studying the information about KTS after work. The broker dared to say: "You don't need to concentrate all you need to be able to do is say okay...that's fine."

If I don't indicate, you may think this is a HK case!