Watchdog to pay for fraud

In a decision that could pave the way for a flood of lawsuits, a lower administrative court has ruled that Greece’s Capital Market Commission (CMC) must compensate two investors who fell foul of fraudulent investment companies. The ruling by the Athens administrative court of first instance obliges the independent market watchdog to pay a total of 158,570 euros to two claimants who invested their capital in the companies Tetraktys, Astraia and the Luxembourg-based Tetraktys Worldwide Investments SA. The first company ostensibly delivered orders to stockbroking firms, while the second also offered investment advice. However, in conjunction with Tetraktys Worldwide Investments, the two firms effectively set up a pyramid scheme, luring investors with offers of a 16.5 to 18.34 percent guaranteed return on their capital. This started in 1999, at the height of the Athens stock market bubble, and is believed to have resulted in the loss of some 58.7 million euros in investors’ savings. CMC finally intervened in 2003, revoking Astraia’s license, closing down Tetraktys and fining Tetraktys Worldwide Investments for illegal activities in Greece. However, two of the pyramid scheme’s victims successfully sued CMC, arguing that the watchdog had failed to exert proper control over the companies. «The Commission neglected to exert effective control over the three companies, and as a result they were able to operate illegally and – through offering attractive deals with guaranteed returns – attract investors,» the decision said. «These omissions constitute an illegal act on behalf of the Commission, and create an obligation to compensate [the claimants.]»

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