by Renee Israel
The collapse of WorldSpreads, the British spread betting
firm, has not only resulted in the possibility of its clients losing their
balances with it, but has also generated fears that other similar organizations
holding public money in trust may go bankrupt.
WorldSpreads was put into administration on March 18, 2012 and its accounts
frozen. About 15,000 individual clients are said to have had cash balances in
their personal WorldSpreads accounts at the time.
One of these is 38-year-old Richard Jennings, a former fund manager at West
Yorkshire Pension Fund in Leeds. He now runs Spread Bet Magazine, an online
publication. Jennings had more than £100,000 with WorldSpreads and is demanding
answers from the administrators.
In order to pack more of a punch, Jennings has formed the WorldSpreads Action
Group with 18 other clients, each of whom has more than £100,000 with
WorldSpreads. This group will track the compensation process and will also
evaluate the viability of taking legal action against the company's executives.
Interestingly, WorldSpreads Chief Executive Officer Conor Foley resigned a
week before the bubble burst and Finance Director Niall O'Kelly resigned in
Police Investigating WorldSpreads for Fraud
The WorldSpreads Action Group will be aided by the fact that the London
police are also investigating the errant spread betting firm on suspicion of
The collapse of WorldSpreads was not the first such event in recent British
financial history. Two stockbroker firms MF Global Holdings Ltd. and Pritchard
Stockbrokers Ltd. had collapsed earlier.
Nirav Shah, who has £250,000 in five accounts at WorldSpreads expressed
public sentiments perfectly when he said, "Since MF Global happened, I've got no
faith in the auditors, no faith in the regulatory system. It's all been abused.
It's going to happen time and time and time again. Who's next?"
It is evident that many financial companies are not segregating their
clients' funds. The Financial Services Authority has announced that it will
increase its scrutiny of firms that hold client funds, but this will be of
little solace to those who have already lost their savings.
Some of the larger firms in this industry, like IG Group, CMC, City Index and
Gekko, have been busy trying to protect themselves from any backlash. They are
assuring their clients that the collapse of WorldSpreads will not affect them
and that they are not under any regulatory scrutiny. Most important, they have
written to their clients informing them that the client funds are held in bank
accounts different from the firms' own working capital.
IG Group is Britain's biggest spread betting firm with 41% market share. Tim
Howkins, CEO of IG Group, said, "Small, badly managed firms occasionally fail.
It's not something that's unique to our industry."