Guernsey’s financial watchdog has been ordered to rethink the severity of the punishment handed to a senior fund manager who was banned from working in the finance sector after misdemeanours related to a diamond-backed loan deal.

In a detailed judgment handed down on 19 December, and made public for the first time last week, the Guernsey Court of Appeal confirmed that Nicholas Walton Hofgren had acted with a “lack of probity” while running regulated financial business, but ruled that the Guernsey Financial Services Commission must reassess the seriousness of his conduct and the sanctions imposed.

14-year ban

The case stems from a regulatory investigation into Mr Hofgren’s role as an executive director and beneficial owner of GFG Limited, a fund manager involved in a series of complex and ultimately unsuccessful investment transactions.

In November 2022, the GFSC concluded that Mr Hofgren had failed to meet the ‘Minimum Criteria for Licensing’ and imposed a sweeping set of sanctions, including a 14-year prohibition from holding senior roles in licensed businesses.

A £290,000 financial penalty was also imposed but not enforced because of what the judgment described as his “impecuniosity”.

Mr Hofgren appealed the decision, arguing that the regulator had made legal and factual errors and that the sanctions were disproportionate. Those arguments were rejected by the Royal Court in 2024, prompting a further appeal to the Court of Appeal.

Lacking “soundness of judgement and competence”

At the heart of the case were findings that Mr Hofgren’s conduct showed “a lack of competence and soundness of judgement, and were lacking in probity”, particularly in relation to a diamond-backed loan transaction.

The GFSC’s Senior Decision Maker (SDM) found that Mr Hofgren had promoted an investment despite having not having “professional skill or experience in this field”, and that his actions had created serious governance and risk concerns.

The judgment noted that he had allowed “a third party to remove two diamonds from the storage facility” securing a loan, “without the knowledge of other Directors”, and that this involved “a significant portion of the collateral securing the loan”.

It went on to state that Mr Hofgren “failed to prioritise the interests of investors over his own interests”, and that he had demonstrated “a lack of probity, soundness of judgement and competence”.

An argument regarded with “incredulity”

The Court of Appeal rejected Mr Hofgren’s argument that the regulator had erred by failing to expressly apply a dishonesty test, saying there was “no need for the SDM to specifically refer to” such a test, provided the substance of the assessment was carried out.

Repeating the Lieutenant Bailiff’s comments from a previous hearing that Mr Hofgren “is not entitled to be obstinately or pedantically obtuse” when reading the judgment, Clare Montgomery KC – sitting as President of the Court of Appeal, alongside Roddy Dunlop KC and the Rt Hon Dame Julia Macur – went on to state their opposition to his argument in strong terms.

“I regard the submission that the Appellant finds it impossible to discern in what way his behaviours could be found to have amounted to a lack of probity as opposed to lack of competence or sound judgment with incredulity,” the judgment saidm adding that the GFSC’s findings were not “undermined” as a result of the “turn of phrase”.

It is the Appellant’s lack of competence and lack of sound judgment, quite apart from his disingenuousness, when judged against the relevant professional standards, which define his lack of probity,”

“The Appellant did not suddenly become aware that he had no experience in the diamond trade,” the judgment said, adding that his conduct must be judged “against a higher and professional standard”, the judgment noted.

Back to the regulator…

However, while the court upheld the core findings, it ruled that the Royal Court had made an error of law in how it reviewed the severity of the sanctions.

Crucially, the Court of Appeal said the regulator must reassess the case on the basis that Mr Hofgren’s actions “risked, rather than caused damage to the reputation of the Bailiwick”.

It also ordered that one finding – that Mr Hofgren had attempted to mislead the regulator about personal financial benefit – must be excluded from any future assessment.

“The appeal is allowed in part,” the judgment concluded.

“The assessment of seriousness and the imposition of sanctions is remitted to the Commission.”

While the finding of “lack of probity” stands, the case now returns to the GFSC, which must decide whether the same penalties are still justified once those adjustments are taken into account.

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