With new year firmly out of the way (I hope yours was better than mine), we hurtle towards the five-year anniversary of the Arch Cru debacle. How time flies when financial scandals are coming at you thick and fast from all angles.
As many of you know – those who wisely did not advise clients to invest in this fund deception, as well as those who were unfortunately tricked by the marketing hype – it was March 2009 when the Arch Cru balloon went up. March 16, to be precise, when the Arch Cru funds were suspended – for good, as it has transpired.
Some 20,000 investors were caught in the scandal, most of whom had been recommended to invest in the low-risk (cautious managed) funds by their trusty financial adviser.
Funds, it transpires, that were anything but low-risk, being invested in a mix of hedge funds, private equity, forestry, wine and creaky Greek shipping. You couldn’t make it up.
Since March 2009, investors have had to wait patiently for redress or chunks of their original investments to come back their way. But come it has in dribs and drabs.
A series of payments have been made to investors as a result of the sale of traceable assets held by the Guernsey-listed cells through which money in the Arch Cru funds was invested.
Furthermore, £54m has been distributed as a result of a deal struck between the regulator (the disbanded Financial Services Authority) and some of the institutions involved in the overseeing of the Arch Cru funds in the run-up to their suspension – BNY Mellon, Capita and HSBC. This settlement scheme closed in December 2013, a year later than originally planned.
And some investors have managed to obtain redress from their adviser for inappropriate advice under a scheme set up by the FSA (thankfully, a regulator no more). Or where their adviser has gone out of business, from the Financial Services Compensation Scheme.
And then, just before Christmas, Justice Walker ordered fund managers Arch and its chief executive officer Robin Farrell to pay damages of £22m, plus interest and costs, for their role in the demise of Arch Cru.
The charges were breach of fiduciary duty, breach of contract and negligence in the case of Arch. Dishonest assistance of Arch in breach of its fiduciary duties, and inducing breach of contract in the case of Mr Farrell.
Although it is unlikely that the damages will be paid in full, let us hope that some of this money will trickle back to investors.
Despite this mix of redress, compensation and return of capital, most Arch Cru investors can hardly feel that justice has prevailed.
Despite this mix of redress, compensation and return of capital, most Arch Cru investors can hardly feel that justice has prevailedThe all-party parliamentary group on Arch Cru, under the chairmanship of first Alun Cairns and now Guy Opperman, has done some splendid work in trying to ensure the maximum amount of money is recovered for Arch Cru victims. Mr Opperman, a crusading MP, has described the Arch Cru case as a “terrible financial scandal”.
Yet even the group’s own calculations indicate that financial justice will not prevail. Mr Opperman forecasts that once £60m of remaining assets in the Guernsey cells are sold, Arch Cru victims will have got back some 54 per cent of their original investment.
Some, primarily those who obtained redress from their adviser, will end up getting more. Others are reliant on the outcome of a case being spearheaded by solicitor Harcus Sinclair, which is not due to be heard by the courts until Spring 2016 at the earliest.
The all-party group, like all such groups, will be disbanded in May ahead of the general election. Although Mr Opperman said that until then it will continue to fight for affected constituents – and will provide another update in March – its impending demise will remove a key pressure point.
Some financial advisers I have spoken to about Arch Cru in recent days remain convinced that key parties involved in this sorry investment affair have not been held properly to account.
Andrew Hulmes, a chartered financial planner with Bonham Financial Planners in Macclesfield, said: “Litigation, fines and negotiated settlements are the order of the day. It is extraordinary that apart from Arch not one single organisation responsible for the management and administration of the funds was aware that the Arch Cru funds were being manipulated. This is a case of regulatory failure.”
His view is shared by another adviser I have been speaking to about Arch Cru for the past couple of years. He said his life has been “ruined” by the fallout from Arch Cru – his firm went into administration as a result of claims made under the adviser redress scheme. He believes advisers have been unfairly punished for their role in the Arch Cru saga.
“The high court ruling against Arch and Mr Farrell,” he said, “clearly raises a number of questions over the regulatory handling of Arch Cru. It also raises further questions over the role of those who were meant to safeguard investors’ interests – especially Capita, registrars to the funds.” Reading between the lines, he believes Capita, HSBC and BNY Mellon have got off too lightly.
Like victims of Equitable, I fear that Arch Cru investors will end up being dealt a financial injustice. Like Equitable, it will remain a blot on the financial services landscape. A travesty.
Jeff Prestridge is personal finance editor of the Mail on Sunday
