The Financial Services Authority (FSA) is locked in a court battle with a prominent firm of solicitors that it wants to fine £150,000 for alleged offences involving overseas “boiler rooms”.

Alleged regulatory breaches by Fox Hayes, a Leeds law firm, helped five boiler room firms to target more than a thousand UK investors, who lost almost $21 million in 2003 and 2004, according to court documents.

Fox Hayes approved 34 financial promotions by boiler room firms, the FSA argues, and carried on in the face of numerous warning signs that their customers were not being treated fairly.

Fox Hayes began its challenge yesterday in the Financial Services & Markets Tribunal, which is essentially a court of appeal for FSA enforcement decisions.

Boiler rooms are typically unregulated overseas operations that target investors using high-pressure sales tactics to sell usually overpriced or worthless shares.

According to the FSA’s enforcement notice, Fox Hayes failed to show that it had taken reasonable steps to ensure that the promotions were clear, fair and not misleading. The regulator argued that the firm also had reason to doubt that the boiler room personnel would deal with British customers in an honest and reliable way.

“To make matters even worse, the involvement of a reputable firm of English solicitors was liable to instil confidence in customers,” the FSA said. The firm was, therefore, in breach of Conduct of Business rules and should pay a penalty of £150,000, the FSA’s Regulatory Decisions Committee (RDC) found in September 2006.

Fox Hayes argues that the FSA has failed to show that any of the firms were engaged in fraudulent behaviour of any kind. In one document it says: “If the FSA does intend to allege that the scheme involved fraud, it should say so.”

The fast-growing firm, whose slogan is “A bold, ambitious firm that challenges convention to get results”, had no comment last night.

The FSA’s enforcement unit had asked for a £200,000 penalty, but the RDC reduced this because Fox Hayes had cooperated with the FSA and ceased approving further promotions.

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