Property investor Robert Tchenguiz has been ordered to pay debts of £1.3m to spread betting company CMC Spreadbet.
In a High Court trial in October, lawyers for Tchenguiz argued that CMC should have put him on a non-professional account that limited his losses, rather than a professional account that didn’t.
However, in a ruling handed down today (01/07/22) judge David Elvin QC ruled that Tchenguiz was lawfully categorised as a professional client, so the debt should be paid, with interest.
Standard spread betting accounts have consumer protection measures in place that only allow users to trade when there is money in their account. If a user’s losses exceed the deposit, the position is terminated and the losses stop.
However, financial sector professionals can apply for pro accounts with better rates that don’t have the same level of consumer protection as long as they fulfil certain criteria.
With professional accounts, losses can exceed users’ deposits. This allows users to take longer-term positions and also rack up potentially huge losses if the market moves against them.
According to the ruling, Tchenquiz is an “experienced spread better” who had accounts with a number of spread betting firms and in early 2020 had around 81 million spread-betting shares in transport company First Group.
Three million of those shares were with CMC and, according to the ruling, were wiped out in March 2020, when the market moved against him during the period of market volatility triggered by the coronavirus pandemic and lockdown. This left him owing CMC more than £1m.
According to the ruling, Tchenguiz, who is an “authorised person” under the Financial Conduct Authority’s rules, started spread betting with CMC using a retail account but later upgraded to a professional account.
His lawyers argued that CMC didn’t fully comply with the FCA’s Conduct of Business rules when they upgraded him because they didn’t fully notify Tchenguiz about the loss of protections that came with a professional account. They said that, as a result, the losses should not have accrued because he should have been on a retail account.
However, the judge disagreed, saying: “I reject the submissions advanced on behalf of Mr Tchenguiz that inadequate warnings were given to him, that no sufficient reference was made to the disadvantages of recategorisation as a professional client or any implication that he was not in fact well aware of them or that he was wrongly required to opt-up to professional status.
“I conclude… that Mr Tchenguiz was properly and willingly recategorised by CMC as an Elective Professional Client.”
Tchenguiz’s lawyers also argued that CMC acted irrationally when it shut down Tchenguiz’s position after the market had moved against him, and should instead have left the position open. They pointed out that other spread betting firms allowed Tchenguiz to keep his position open.
Again, the judge found against him. He said: “In the difficult circumstances in late March 2020, and the fact that all the [spread betting firms] with which Mr Tchenguiz has taken out positions were looking to close out and were not cooperating to provide a global solution, I find it difficult in the context of the CMC agreement to treat CMC’s approach as irrational.
“As for the timing of the close-out, whilst it is true that CMC was aware of the volatility in the market and of the volume of sales that were taking place on 16 March, it was entitled, given the contractual requirements, not to speculate as to what was happening with other [spread betting firms] or to delay further a close-out decision given the lack of realistic proposals by Mr Tchenguiz to resolve his outstanding balances, as he was contractually obliged to do, or to delay further in the hope that the market might improve.
“It follows that the claim succeeds, the defendant is indebted to CMC in the sum of £1.31m together with interest due.”
Tchenguiz is also involved in a similar dispute with spread betting firm IG Index.
CMC Spreadbet plc v Robert Tchenguiz
Business and Property Courts (David Elvin QC sitting as a Deputy High Court Judge) 1 July 2022
