Case Update James Potts

Transcription

1 Case Update James Potts

2 1. Keydata: assignment to FSCS of rights to sue 2. Arch Cru: redress and group litigation 3. Arck SARP scheme: unregulated schemes

3 1. Keydata Assignment of right to sue to FSCS

4 Keydata Investment Services Ltd Structured investment products for retail customers, sold as tax-free products Distributed via IFAs 2.8 billion under administration at time of liquidation c.85,000 investors Bond issued by SLS Capital SA and Lifemark SA funds invested in US life insurance polices and cash

5 Background 18 Dec 2007: FSA investigators appointed into Keydata 8 June 2009: Keydata put into administration SFO investigates missing 103 million supposed to have been invested with SLS Capital 26 Oct 2010: FSA Warning Notice to Keydata executives including Stewart Ford April 2011: Final Notice to Norwich & Peterborough BS 11 Oct 2011: High Court finds certain communications relied on by FSA to be privileged: R (Ford) v FSA [2011] EWHC 2583 (Admin) 2 Nov 2012: SFO closes Keydata investigation 2013: FCA restarts its investigation of Stewart Ford

6 Financial Services Compensation Scheme FSCS pays investors compensation 100% of first 32,000 and 90% of next 20,000 Levy c. 242 million on investment intermediaries Judicial review of FSCS levy unsuccessful: R (ABS Financial Planning) v FSCS [2011] EWHC 18 (Admin) Small amounts recovered from Lifemark FSCS issues proceedings against hundreds of IFAs, offering 50% early settlement discount for smallest cases Aug 2013: six lead defendants selected Oct-Nov 2013: around 100 IFAs settle with FSCS

7 Assignment of rights to FSCS COMP 7.2.1R The FSCS: (1) must or if the FSCS is subrogated automatically to the claimant s rights may make any payment of compensation to a claimant, in respect of a protected deposit, conditional on the claimant, in so far as able to do so, assigning the whole of his rights; and (2) may make any payment of compensation to a claimant in respect of any other protected claim conditional on the claimant assigning the whole or any part of his right; against the relevant person, or against any third party, or both, to the FSCS on such terms as the FSCS thinks fit. COMP 7.2.2R If a claimant assigns the whole or any part of his rights against any person to the FSCS as a condition of payment, the effect of this is that any sum payable in relation to the rights so assigned will be payable to the FSCS and not the claimant.

8 COMP 7.6.2R Unless compensation was paid under COMP 9.2.3R or the claim was for a protected deposit, if a claimant assigns or transfers his rights to the FSCS or a claimant s rights and claims are otherwise subrogated to the FSCS and the FSCS subsequently makes recoveries through those rights or claims, those recoveries must be paid to the claimant: (1) to the extent that the amount recovered exceeds the amount of compensation (excluding interest paid under COMP R) received by the claimant in relation to the protected claim; or (2) in circumstances where the amount recovered does not exceed the amount of compensation paid, to the extent that failure to pay any sums recovered to the claimant would leave a claimant who had promptly accepted an offer of compensation or whose rights and claims had been subrogated to the FSCS at a disadvantage relative to a claimant who had delayed accepting an offer of compensation or whose claims had not been subrogated.

9 Key issues Scope of duty/foreseeability/causation Reliance on opinion of Keydata as provider However see Final Notice to Care Asset Management Ltd (27 March 2013), paras 25-26: 25. In coming to this conclusion, Care appears to have relied on Keydata s opinion in the Keydata Product literature that the Keydata Products were lower risk than many traditional stock market linked income investments. 26. However, Care s duty to advise on the suitability of investment products (including the risk rating of products) for its customers could not be discharged by reliance on Keydata s opinion of the riskiness of its products. Care was obliged to form its own view of the suitability of the Keydata Product for each particular consumer, based on information that Care had, or ought reasonably to have obtained, regarding the Keydata Products and their suitability for each customer s circumstances.

10 Financial Ombudsman Service FOS has begun determining hundreds of complaints against IFAs concerning Keydata advice FOS-keydata-MrMrsK-finaldecision-Nov12.pdf FOS award no bar to suing for balance? (Clark v In Focus Asset Management Ltd [2012] EWHC 3669; CA decision awaited)

11 Financial Ombudsman Service JR issued against FOS by Westscott Financial Services, CBHC LLP and DTE Risk and Financial Management challenging the unwritten general policy of FOS to refuse suspension of the complaints: The risk posed by these products is currently the subject of litigation against more than 500 IFA firms in the commercial court However FOS has seen fit to make its own assessment of risk, on general grounds, without exhibiting quantitative calculation, and make adverse findings against the claimants, including ordering substantial financial redress in each case The claimants will be substantially prejudiced by such an outcome, for their reputations will remain tarnished by the FOS findings, and their insurance premiums will remain higher than they would otherwise be.

12 2. CF Arch Cru Group Litigation

13 CF Arch Cru Arch Cru Investment Funds and Arch Cru Diversified Funds invested in 24 cell companies listed on Channel Islands Stock Exchange In turn invested in assets such as Greek shipping and property in Cape Verde 391 million invested c.6,400 investors Authorised corporate director Capita Financial Managers Ltd

14 Chronology 13 March 2009: funds suspended following Arrow visit June 2011: 54 million voluntary Payment Scheme set up by Capita, HSBC and BNY Mellon (cut-off date 31 Dec 2013) 14 Sept 2012: FSA Decision Notices to Arch Financial Products LLP, CEO Robin Farrell and COO/CFO Robert Addison (no prohibition on publication: Arch Financial Products LLP v FSA, FS/2012/20) 13 Nov 2012: Decision Notice to Capita Dec 2012: 110m FSA Consumer Redress Scheme IFAs required to contact Arch Cru clients by 29 April 2013 to inform them (decisions due 9 Dec 2013)

15 Chronology No permission for judicial review of Redress Scheme: R (Coull Money) v FSA [2012] EWHC 612 (Admin); and another unsuccessful attempt at JR by Capita Proceedings in England and Guernsey against Arch Financial Products LLP and directors personally Claims against auditors and fund managers 2013: Guernsey Govt spearheading negotiations for a second settlement with investors May 2014: Tribunal reference by Farrell, Addison and Arch Financial Products to be heard

16 Group Litigation Order Investors suing Capita directly: Frost and others v Capital Financial Mgmt Ltd GLO made on 1 November 2013 Cannot participate if accepted redress Frost v Capita Financial Managers Ltd Sealed_Group_Litigation_Order.pdf CF Arch cru_particulars of Claim.pdf

17 Finally, Capita has also been sued in Greece by 14 Greek shipping firms and individuals

18 3. Arck Investment Scheme Unregulated schemes

19 Arck Investment Scheme Sale & Repurchase (SARP) contracts for properties in Cape Verde Unregulated Collective Investment Scheme (UCIS) Undertaking that sums invested would be kept in ring-fenced accounts held by Yorkshire Bank c. 60 million invested by 750 investors

20 Chronology 23 Dec 2011: freezing order on main segregated client account, which turned out to contain only : Arck LLP liquidated Liquidators report alleges payments of over 4 million to directors not adequately explained March 2012: directors Kathryn Clark and Richard Clay arrested FSCS awaiting outcome of SFO investigation

21 Claim against Yorkshire Bank Dozens of investors claiming against Clark and Clay for missing 4 million Claims also brought against c.20 IFAs FOS says no jurisdiction complaints now made directly to Yorkshire Bank Claim intimated against Yorkshire Bank for failure to segregate client money

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