Phillip Securities sold the American Pegasus Fixed Income Fund – Series II Segregated Portfolio to the four clients around Aug 2004, involving transaction amount of approximately $819,000.
The American Pegasus Fixed Income Fund – Series II Segregated Portfolio is a viatical settlement which invested in senior life settlement insurance policies issued by investment grade insurance companies in the United States. It is not a product authorized by SFC. In June 2010, investors were notified that the fund would be wound up as it did not have sufficient value to continue to pay life insurance policy premiums until the expected maturity of the life settlement policies held by it. The fund was liquidated in Jul 2011 and the clients have not been able to recover their investment.
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.
This case illustrates that for mis-selling of only one fund to just a few clients, involving a non-material total amount, more than 10 years ago, SFC would still take disciplinary action against the firm. I guess in this case the affected clients of Phillip Securities had lodged their complaints to SFC.
