However, they would be truly aghast at the alleged activities of Keydata’s senior executives – if the FCA’s decision notices can be taken at face value.
Two weeks ago the FCA announced a total £75m fine for the company’s former chief executive Stewart Ford, a £4m fine for former sales director Mark Owen, and a £200,000 fine for former compliance officer Peter Johnson, for activities that led to at least £330m of losses from Keydata’s investment products. The FCA has also prohibited all three from “performing any role in regulated financial services”.
The decision notices detail what the FCA believes happened, and why it has taken the action that it has. The Keydata trio have appealed the notices to the upper tribunal, which can agree with them, require them to be modified, or cancel the FCA’s decisions.
Keydata, which was majority owned and controlled by Mr Ford and went into administration in 2009, was set up to design and market structured investment products. Between the summers of 2005 and 2009, the company designed products based on a particular high-risk investment.
The products were based on bonds from SLS Capital and Lifemark, special purpose vehicles listed on the Luxembourg Stock Exchange. These in turn used the money raised to invest in life settlement policies.
However, the management of the company and administration of the products left much to be desired, according to the FCA. To start with, by any reckoning, they were high-risk products – a (typically) US policyholder might cash in his policy at a discount, but live much longer than expected, delaying maturity of the product.
They were not designed for the average, retail investor, looking for something to put into his Isa. But this is exactly how they were marketed. One of the many criticisms of Mr Ford was that he “recklessly permitted Keydata to continue marketing the Lifemark products as fulfilling the conditions set out by the Isa regulations, when he was aware that it was highly likely that they did not do so”.
He also allegedly forced Keydata to promote Lifemark products, without doing proper due diligence on the products or owning up to his apparent conflict of interest – namely that as a director of Lifemark he stood to gain from product sales.
The FCA claimed he misled investors and the regulator over the products’ performance, and by not telling the regulator that he was a director of Lifemark.
On top of this the FCA said Mr Ford ignored professional advice that the Lifemark products were in danger of not performing; he “recklessly failed either to ensure that Keydata addressed the issues and risks that had been identified or stop Keydata from marketing or selling Lifemark products until effective remedial steps were taken.”
The FCA reserved no niceties for what it saw as an acute part of the problem: Mr Ford’s directorship of Lifemark, whose products Keydata was selling. It said: “He had a personal interest to ensure that Lifemark products continued to be sold and that Lifemark continued to buy US senior life settlement policies despite his awareness of the risk of the Lifemark portfolio not performing.”
It added that the Lifemark companies “took over £72.4m from the Lifemark structure in undisclosed fees.”
Mr Owen was also criticised for allegedly misleading investors and the regulator; Mr Johnson failed to act properly on advice, it was claimed.
The Keydata trio are seeking legal action. Mr Ford plans to file a claim for £650m in damages against the FCA and PricewaterhouseCoopers for their roles in Keydata’s closure. He said: “The decision notices are FCA’s version of events. I’ve given them thousands of pages over six years of evidence which contradict what they said. That report is fantasy and fable. This fine isn’t a fine, it doesn’t exist. The authorities wanted to pin something on somebody and they pinned it on me.”
While the FCA declined to comment on Mr Ford’s allegations, a PwC spokesman said: “We do not believe Mr Ford has any grounds to bring an action.”
Melanie Tringham is features editor of Financial Adviser
