Capital Financial Managers and Blue Gate Capital, former authorised corporate directors of the Connaught funds, are to be subject to a ‘formal’ investigation by the Financial Conduct Authority for their role in the demise of the Income Series 1 Fund.
The regulator confirmed in a statement it has “withdrawn” from the negotiations between the two ‘operators’ and the liquidator of the fund, which had aimed to “see if an agreement can be reached to address losses by investors in the fund”.
The regulator added it has “now decided to formally investigate the activities of both operators”.
This follows last month’s announcement that Connaught settlement talks were still ongoing. The FCA added “that there will be no further comment until investigations are concluded”.
In a statement, the regulator noted: “The fact that a firm is under investigation does not mean that the FCA has reached any conclusions on whether any wrongdoing has occurred.”
In March 2012, Connaught Asset Management suspended its Series 1 fund, followed by the Series 2 fund the following month. In June that year the Series 1 fund was wound down, with losses of at least £10m, again followed soon after by the Series 2.
In November last year, the FCA warned that settlement discussions would roll into 2015. On the same day, liquidators acting on behalf of the Connaught Income Fund Series 1 were given permission by the High Court to pursue the fund’s ‘operators’, CFM and Blue Gate, for breach of duty.
At the start of May last year, an All-Party Parliamentary Group looking into the collapsed funds held its first debate, raising questions over the sprawling and confusing nature of regulation of so-called ‘unregulated’ investments, as well as a perceived lack of transparency by the regulator itself.
During the debate, serious criticisms were levelled at Capita, the FTSE 100 outsourcing firm that has secured a host of government contracts and whose subsidiary, Capita Financial Managers, acted as authorised corporate director of both the Connaught and Arch Cru funds.
It has been ‘censured’ over its role in the Arch Cru failures, but having provided the largest slice of an initial £54m redress fund, it was not hit with any further financial penalty. Advisers have had to pay redress to many clients following a consumer redress scheme set up by the FCA.
Capita has not yet been hit with any penalty or censure by the FCA over Connaught. It is not clear to what extent the firm knew anything of the troubles at the firm when it sought to remove itself as director in 2009.
By the middle of July, the regulator had announced that a ‘negotiated settlement’ represented the best course of action for all parties, following its appearance before the All Party Parliamentary Group.
donia.o’loughlin@ft.com
