The Financial Conduct Authority v Argento Wealth Limited & Anor

This case came out of two investment arrangements linked to Argento Wealth Ltd, or AWL. The FCA alleged that AWL had breached FSMA and that its sole director, Daniel Willis, was knowingly concerned in those alleged breaches.

The judgment was not a trial of those allegations. The court made that clear. The underlying proceedings had been adjourned generally under a Repayment Deed, the defendants made no admissions, and the proceedings would be discontinued after the recovered money was distributed.

That meant the court was dealing with a narrower but commercially important question. Once money had been paid into an FCA holding account under the Repayment Deed, how should that money be distributed?

The answer mattered because the recovered funds came from two different streams. One stream came from the AWL Loan Scheme and the other from the EMB Scheme. The court had to decide whether those streams should be treated as separate pools and who was entitled to share in each one.

In the EMB Scheme, AWL was appointed as a distributor for participating shares in EMB Fund Ltd, a Cayman mutual fund. Under the distributor agreement, EMB agreed to invest 75% of equity investments procured through AWL and its sub-distributors in trade programmes managed by AWL.

That 75% was advanced to AWL under a lender agreement. The judgment records that investors introduced to EMB by AWL and its sub-distributors paid at least USD 8.8 million for EMB shares, and that 75% of that amount was paid on to AWL. AWL received EUR 4.19 million into its TransferWise account.

In the AWL Loan Scheme, AWL received money directly from investors under standard form loan agreements. Those agreements promised repayment with 25% interest per annum within a specified period. The scheme was marketed on AWL’s website as a loan note investment involving a proprietary trading strategy and a globally diversified portfolio.

Most AWL lenders paid into AWL’s Starling Bank account. Two investors made all or part of their investments in cryptocurrency. The FCA’s investigation concluded that the funds advanced under both schemes were not used as investors expected and that much of the money had been dissipated or misappropriated.

The first issue was jurisdiction. Section 382(3) of FSMA says money paid to the regulator under a section 382(2) order must be paid or distributed to qualifying persons as the court directs. Here, there had been no final section 382(2) order. The money had been paid voluntarily under the Repayment Deed.

The second issue was whether the original advances were subject to a Quistclose trust. That mattered because, if a trust existed, the money would not simply be part of a general compensation exercise. The beneficial interest would have remained with the relevant lender or investor unless the money had been properly applied for the stated purpose.

The third issue was who counted as a qualifying person. The FCA identified AWL lenders, EMB investors introduced through AWL and its sub-distributors, and other EMB investors who had not invested through AWL’s promotional efforts.

The fourth issue was distribution method. Should the court pool the Starling residue and the TransferWise residue together and divide them across all qualifying persons, or should each residue be distributed only to the group linked to the scheme from which that residue came?

The trust issue is the part of the case many businesses will find most useful. The EMB lender agreement and the AWL lender agreements said that AWL had to apply borrowed amounts only towards trade opportunities approved by the insurance company and associated costs. They also said AWL would only use the loan for the purpose specified in the agreement.

On paper, that sounds restrictive. A lender might think this means the money is ring-fenced and cannot be used generally in the borrower’s business. But the court said the real question is objective intention. Did the parties mean the money to be tightly restricted, or did they mean AWL to have free use of it in the course of its business?

The judge relied on the modern Quistclose trust authorities and stressed that lending money for a purpose is not enough by itself. In commercial agreements, lenders often ask what the money will be used for. That does not automatically stop the borrower from having beneficial use of the money once it is advanced.

So the court looked beyond the purpose clause. It examined the wording, the surrounding commercial context, the insurance arrangements, the marketing materials and the practical handling of the funds. That broader approach is the key drafting lesson from the case.

The court rejected the Quistclose trust argument on the facts. One reason was the wording itself. The phrase 'the insurance company' was not capitalised, not defined and not otherwise explained in the loan agreements. The judge considered that the language looked like placeholder wording that the parties had never properly turned their minds to before signing.

The wording was also very general. The court noted uncertainty around what counted as a trade opportunity and what counted as associated costs. That level of imprecision made it harder to say the money had been advanced for a sufficiently specific and tightly controlled purpose.

Another problem was inconsistency elsewhere in the agreements. The documents allowed AWL to apply loan proceeds to certain fees and expenses. The court considered that this sat awkwardly with the idea of a strict and narrow purpose limitation.

The wider context also mattered. AWL’s business was, or was purported to be, investment in trade opportunities. The website marketing for the AWL Loan Scheme referred to a proprietary trading strategy and a globally diversified portfolio. That pointed towards money being advanced for use in AWL’s business generally, rather than being locked to a single supervised purpose.

The insurance references did not rescue the trust argument. The court accepted that the relevant insurers were likely Allianz and Everest Re, but the policies did not support the idea that each future trade opportunity had to be individually approved before money could be used. The better interpretation was that investors believed the relevant universe of trading activity had some insurance-related approval, not that each use of funds was separately controlled.

The absence of any requirement to keep the money separate was another indicator against a trust. Taking everything together, the judge concluded that the lenders intended to make immediate loans to AWL to be freely disposed of in the course of its business, even though they may have believed insurance gave them stronger protection than it really did.

On jurisdiction, the court held that section 382(3) FSMA could still be used. Although there was no final section 382(2) order, the judge followed earlier authority and took a purposive approach. Because the FCA had properly received money arising out of a section 382 claim and was proposing to distribute it to qualifying persons, the court had jurisdiction to approve the distribution.

On qualifying persons, the court accepted that AWL lenders were qualifying persons in relation to the Starling residue. It also accepted that EMB investors introduced through AWL and its sub-distributors were qualifying persons in relation to the TransferWise residue.

The court rejected the inclusion of other EMB investors who had not invested because of AWL’s promotional efforts. Their losses were considered too remote from the defendants’ alleged contraventions for the purpose of this distribution exercise.

The judge then chose to respect the separate existence of the two schemes. The starting point was that where recovered money is attributable to separate schemes, those schemes should be kept separate unless fairness requires otherwise. On the FCA’s case, the schemes involved distinct wrongs to distinct groups of investors, so separate distribution was fair.

The Starling residue of £841,763 was to be distributed among AWL lenders on a pro rata basis by reference to each lender’s net investment, after deducting any payments already received by way of interest or compensation. The TransferWise residue of £1,046,488 was to be distributed among EMB investors introduced through AWL and its sub-distributors, pro rata by reference to their investment amounts, subject to any necessary Crown Court approval because those funds remained subject to criminal restraint orders.

The court preferred a simple and broad-brush method. It did not try to model timing differences between investments or gains and losses in cryptocurrency values. Instead, it used unrecovered investment amount as the practical basis for distribution.

This case is best read as a warning about alignment and evidence. If your business raises money from customers or investors, the court will not read the agreement in isolation. It will compare the contract with the website, pitch materials, insurance references and the actual movement of funds.

One practical lesson is that vague restrictions are weak restrictions. If a clause refers to approvals, insurance or limited use of funds, those concepts need to be clearly defined and reflected in the way the product actually operates. If they are not, the court may conclude that the money was simply advanced for general business use.

Another lesson is that references to insurance can create serious exposure if they imply a level of protection that the policy does not really provide. In this case, the judge noted that investors appeared to believe their return was guaranteed through insurance, but that understanding was not correct.

For directors and founders, the case shows the value of reviewing the whole investor journey before launch. High-yield products, loan note structures and investment-style promotions can create legal risk quickly if the commercial story is not consistent from start to finish.

If your business is reviewing a fundraising or investment product, this case suggests a practical file check. The aim is to see whether the legal documents and the real-world process tell the same story.

Start with the agreement. If it says funds are restricted, ask whether the restriction is specific, defined and workable. Then test the surrounding materials. Does the website describe a broad trading strategy or diversified portfolio that cuts across the narrow wording? Do insurance references suggest approvals or guarantees that the policy does not actually provide?

Next, look at the payment flow. Are funds segregated, tracked or otherwise handled in a way that supports the stated restriction? If not, the business may struggle later to argue that the money was never at its free disposal.

Finally, check governance. If a product sits close to regulated activity, investor communications should be reviewed at director level and kept under version control. In disputes, those records can matter as much as the contract itself.