Discretionary Management  

Legal challenge to Beaufort Securities administration

Legal challenge to Beaufort Securities administration

A campaign against the administration proposals for Beaufort Securities has been launched by the discretionary fund managers shareholders, claiming the administrator has no right to to take assets they claim are ringfenced.

Sharesoc, the society for individual shareholders, has said it could sue PWC, the administrator for the collapsed company, which was shut down by the Financial Conduct Authority (FCA) in March.

The regulator declared the company insolvent, and shortly after an investigation was announced by authorities in the US into Beaufort, amid allegations of money laundering.

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The FCA had been investigating the company prior to the US authorities becoming involved.

Sharesoc stated that it will challenge the administrator's right to seize ringfenced property, and is challenging PWC's estimate that winding down the business could take four years and cost up to £100m.

A spokesman for PWC said the predicted costs may not be this high, and the £100m figure includes VAT, other operational costs and the need to keep Beaufort staff on during the administration.

When asked about the use of ringfenced cash, A spokesman for PWC said: "The administrators are making all efforts to keep the cost and duration of the administration down.

"Unfortunately the cost of the administration has to be covered from somewhere. In the absence of other funds, the only place is from clients themselves, as hard as that is to accept."

A spokesman for PWC said there will be a distribution plan for Beaufort’s 14,000 UK investors, many of whom should receive money in September.

Sharesoc stated that many of these UK private investors may face losses, although those with very small investments of less than £2,000 will receive their money back in full.

Around 700 clients with assets valued over £150,000 may experience a loss of up to a maximum of 40 per cent on their ring-fenced assets.

A spokesman for Sharesoc said: "The suggestion that PWC as special administrator can seize client property and treat the owners as creditors of the failed entity makes a mockery of regulatory protections for investors in the UK."

The Sharesoc legal challenge will question PWC's estimate of cost and time involved in the administration, as well as reviewing the actions of the FCA, which it argued should not have allowed Beaufort to to continue trading while the FBI was investigating the firm.

FT writer and private investor, John Lee, said: "I am very happy to endorse the thrust of ShareSoc's campaign.

"We were all shocked to discover the seeming vulnerability of clients' funds when we thought that they were ring-fenced and protected.

"This loophole surely has to be closed."

rosie.murray-west@ft.com