Arch Cru’s former administrators have been fined a collective £260,000 by the Guernsey Financial Services Commission for creating a “false market” by failing to submit up-to-date net asset values for Arch Cru Guernsey ICC.
Bordeaux, the designated manager and administrator of Arch Guernsey ICC, during the period from 1 January 2007 to 31 December 2009 has been fined £150,000 by the commission, and three directors have been fined £110,000 and also banned from holding a regulatory function for five years.
Peter Radford, who was also a director of the ICC (the fund) was fined £50,000 and both Neal Meader, also a director of the fund, and Geoffrey Tostevin, the compliance officer at Bordeaux, were fined £30,000 each.
The decision stated that the directors demonstrated a consistent and serious lack of appropriate competence, judgement and diligence, adding that their “conduct demonstrated a lack of understanding and attention to the legal obligations of Bordeaux.
“These failings suggest that the interests of investors and the reputation of the Bailiwick as a financial centre are, or are likely, to be jeopardised by their holding a position of director, controller, partner or manager of a licensee in the immediate future.”
In March 2009, Arch Cru was suspended by the Financial Services Authority over liquidity concerns following increased redemptions.
On 21 December 2010, the fund’s consolidated net asset value was calculated at £234m, which represented “a significant loss to investors”.
The commission found the directors failed to ensure Bordeaux carried on its business with appropriate systems to enable it to function properly. Bordeaux was required to calculate the IC’s net asset value on a monthly basis and to notify the stock exchange CISX of the prices “as soon as practical” after calculation.
During 2008 the timetable for the production of net asset values by Bordeaux “slipped” and NAVs for the end of March 2008 were finalised on 31 July 2008, an interval of four months from the required date of completion. There were further delays in 2009.
“As a result of the delay in producing NAVs during 2008 and 2009 investors and potential investors were not given up to date information on which to base their decisions,” read the decision.
“Furthermore, as most of the ICs were listed on CISX, this could have led to the creation of a false market as independent investors would have dealt, or considered dealing, on indicative sale prices that were not properly reflective of NAV, but the investment manager who was undertaking inter-cellular trades would have been aware of a more accurate, up to date, value of the ICs.”
The document added that the fund’s auditors also referred to a delay to valuations for 31 March 2009 which were not finalised until September 2009 and identified substantial weaknesses in the fund’s records for which Bordeaux was responsible.
The latest decision follows Arch Cru bosses receiving enforcement action from the Financial Conduct Authority.
donia.o’loughlin@ft.com
