The Financial Services Authority has prohibited Stephen Danner, one of the co-founders of Cru Investment Management Limited, from carrying out regulated activities for failing to act with integrity, but has refused to fine him due to the financial hardship he would suffer.
The regulator said Mr Danner behaved “in a way which fell well below the standards required of him.”
Mr Danner was formerly with small Cardiff-based IFA firm SD Asset Management and was one of the co-founders of Cru Investment Management Limited, which marketed the CF Arch Cru range of investment funds to IFAs and was closely involved with the establishment of the funds.
A decision by the Upper Tribunal in June 2012 upheld the FSA’s judgement that Mr Danner should not be approved for a new role at another firm.
Delivering the judgement, the Upper Tribunal characterised Mr Danner as demonstrating “such a poorly directed ethical compass as to amount to a lack of integrity on his part”.
The FSA said: “Mr Danner demonstrated a continuing failure to appreciate or understand the obvious conflict of interest that existed between him, given his close association with Cru, and SDAM’s customers who were advised to invest in the Arch cru funds.”
This conflict of interest was only exposed to SDAM’s customers in 2008 when a new compliance officer took over that function.
Mr Danner’s backing of the Arch Cru funds resulted in his business being organised so that it was heavily weighted in favour of the funds, without a proper understanding of the risks involved or the composition of the fund’s underlying assets.
In total, 390 of SDAM’s clients were advised to invest £39 million in Arch Cru funds. Danner earned £55,000 from SDAM and £553,000 from Arch Cru.
The Arch Cru funds were suspended in March 2009 due to a lack of liquidity. Investor losses against the failed funds have stretched into hundreds of millions.
Capita, the authorised corporate director of the funds, put up £31m as part of a £54m package of redress, while advisers are being pursued by the FSA for up to £140m - though the regulator claims it will be closer to £40m - through its voluntary consumer redress scheme.
Previously, the FSA has issued decision notices prohibiting Arch Financial Products chief executive Stephen Farrell and former compliance director Robert Addison, with the pair being fined respectively £650,000 and £200,000.
Both have referred their decisions to the Upper Tribunal and deny any wrongdoing. Arch itself was also hit with a decision notice but was spared a £9m fine due to its financial position.
Tracey McDermott, director of enforcement and financial crime at the FSA, said: “Danner’s failures were comprehensive. He both failed to understand or act upon either his personal duty to his customers or his obligations as principal to a number of appointed representatives.
“Even when the seriousness of his shortcomings was plain to see, Danner failed to put the problems right despite others drawing them to his attention.
“This case graphically illustrates the consequences of failing to engage with the responsibility of being an approved person.”
