British Steel Pension Adviser Barred for 13 Years

The UK’s Insolvency Service has barred Darren Reynolds, director of financial advice company Active Wealth, from being a director for 13 years for failing to act in the best interests of the company’s British Steel pension clients. The bar prevents him from directly or indirectly becoming involved in the promotion, formation, or management of a company during that time without the permission of the court.

The agency said that between 2014 and 2016, Reynolds advised at least 288 clients to transfer more than £23 million (US$31.7 million) from their defined benefit (DB) pensions into self-invested personal pensions (SIPPs), which invested their money in a portfolio of investments in high-risk corporate bonds called Portfolio Six.

The portfolio’s high-risk investments were described as “relatively illiquid” and “unregulated,” and were specifically excluded from the protection offered by the Financial Services Compensation Scheme (FSCS). Additionally, the bonds were only available for direct investment to experienced high-net-worth or sophisticated investors, or those who had received advice from an expert who had the experience and knowledge to understand the risks.

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In his defense, Reynolds said Active Wealth relied on due diligence conducted by Portfolio Six’s fund manager; however, the Insolvency Service said he either knew or should have known that the fund manager was neither impartial nor independent, as its directors were associated with companies within Portfolio Six.

At the time of its liquidation, Active Wealth’s clients had claimed more than £10 million in compensation from the FSCS as a result of advice received. However, the Insolvency Service said that because individual claims were limited at £50,000, the actual loss suffered by Active Wealth’s clients is more than £24 million.

“This is a very sad situation for these victims who believed Darren Reynolds and his company were providing professional investment advice in their best interests but instead placed their future financial security in high-risk and unsuitable investments,” Rob Clarke, chief investigator at the Insolvency Service, said in a statement. “Thirteen years is a significant ban and removing Darren Reynolds from the corporate arena will protect other investors from further harm for a lengthy period of time.”

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Tags: Active Wealth, barred, British Steel, Darren Reynolds, director, Insolvency Service, Portfolio Six

It took a jury only an hour to find the owner and principal of a California-based investment firm guilty of insider trading and committing a securities offering fraud in which he reaped more than $7 million in ill-gotten gains.

According to the unsealed indictment, Donald Blakstad, who ran an investment fund called Midcontinental Petroleum Inc., allegedly used insider information to trade shares in San Diego-based biotech firm Illumina. He allegedly received the information from Martha Bustos, a former accountant who worked in the finance department at Illumina and had access to material nonpublic information about the company’s financial condition, including its earnings. She pleaded guilty in 2019 for her participation in the insider trading and is cooperating with the government.

Bustos admitted she would tip Blakstad off about Illumina’s quarterly earnings results before they were made public, which allowed him to make profits as high as 2,400% on trades. For example, the indictment alleges that just before Illumina reported its earnings results for the third quarter of 2016, Bustos informed Blakstad that the company had missed its revenue targets. Using that information, Blakstad bought more than 1,500 Illumina put option contracts for approximately $110,000 just before the results were made public and then sold them the very next day for over $2.5 million when the stock dropped on the news.

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The indictment also alleges Blakstad committed a securities offering fraud to take in more than $1 million from several investors. He allegedly induced victim investors to make up-front, lump-sum investments for securities issued by Midcontinental Petroleum, which Blakstad then misappropriated. He is also accused of making false and misleading representations to investors regarding how their investment funds would be used.

The indictment said that at Blakstad’s direction, victims transmitted their funds, including by wire transfer, into bank accounts that he controlled and used the funds to pay for various personal expenses and for other reasons that were unrelated to his investment firm’s business.

“Donald Blakstad used his connections to a company insider to gather inside information that he and his associates then traded on, raking in more than $6 million in illegal profits,” Audrey Strauss, the US attorney for the Southern District of New York, said in a statement. “In addition, Blakstad defrauded investor clients out of more $1 million, funds he purported would be invested but he instead misappropriated, in some cases for personal expenses.”

Blakstad, 62, was convicted of one count of conspiracy to commit securities fraud, two counts of securities fraud, one count of conspiracy to commit wire fraud, and one count of wire fraud for his participation in the insider trading scheme. He was also convicted of one count of conspiracy to commit securities fraud and wire fraud and one count of wire fraud for his participation in the securities offering fraud.

The securities fraud counts and the conspiracy to commit wire fraud count each carry a maximum sentence of 20 years in prison. The conspiracy to commit securities fraud and the conspiracy to commit securities fraud and wire fraud counts each carry a maximum term of five years in prison. Blakstad is scheduled to be sentenced Oct. 28.