Spread betting is a highly-risky type of speculation that involves taking a bet on the price movement of a security. A spread betting company quotes two prices, the bid and offer price, known as the spread, and investors bet whether the price of the underlying stock will be lower than the bid or higher than the offer.
According to the UK’s Insolvency Service, investors were promised “guaranteed” returns of 15% every quarter and told their money would be used to trade spread bets.
The returns never materialised.
In February 2012, the Financial Conduct Authority (FCA) obtained interim injunctions against Mudge, freezing his assets and preventing him from operating the syndicate.
In a settlement reached in September 2013, Mudge admitted to operating the syndicate without FCA authorisation, which broke the law.
The high court subsequently ordered him to pay £7.1m to the FCA to distribute to the scheme’s investors, who the Insolvency Service said have “suffered substantial losses”.
Mudge was made bankrupt after failing to pay any money to the FCA. Other sums recovered by the FCA funded a small pro-rata return to the investors.
On 3 February 2017, the UK county court in Cardiff made a bankruptcy restrictions order against him for 12 years.
‘Too good to be true’
Ken Beasley, official receiver at the Insolvency Service, said: “This case is a prime example of the losses that can be incurred via an investment scheme that looks too good to be true. Investors lost over £7m and Mudge will face severe financial restrictions lasting for 12 years.
“Bankruptcy restrictions orders and undertakings are central to protecting not only the bankruptcy process, but the people and organisations owed money who suffer financially from irresponsible or unscrupulous behaviour.”
Mark Stuart, executive director of enforcement and market oversight at the FCA, said: “Investors are often lured by false promises of high returns without the high risks being disclosed to them. Spread betting on securities or currencies is typically risky and investors in Mudge’s scheme ended up losing substantial amounts of money.
He urged investors to be “vigilant and wary of anyone promising high or guaranteed returns,” adding these are often the hallmarks of a scam, even if the trader is someone you know.
Stuart also called on potential investors to check with the FCA Register “to ensure the person is authorised to be advising or trading on behalf of customers”.