One of the operators of the Connaught Income Fund Series 1 has been ordered to compensate investors after avoiding a £10m fine for its part in the fund's demise.
The Financial Conduct Authority confirmed on Friday it had told Blue Gate Capital to pay £203,007 in restitution to investors who lost money when the Connaught fund collapsed in 2012.
The Connaught fund was an unregulated collective investment scheme run by Capita Financial Managers and, from 2009, Blue Gate Capital, providing short term bridging finance to commercial operators in the UK property market.
The fund went into liquidation in December 2012, with investors losing £118m in the process.
But the City watchdog spared Blue Gate Capital a £10m penalty for its failings because the company had "established it was in serious financial hardship".
It comes less than 24 hours after an independent investigation into the FCA's own handling of the Connaught collapse warned its regulation had not been of the fund was "not appropriate or effective".
The long-awaited report found the City watchdog could have done more to protect investors, in a theme echoed in a similar investigation into the regulator's handling of the London Capital & Finance fallout.
Raj Parker, who led the investigation, did however credit the FCA for its part in recouping investor funds following the collapse.
The £203,007 paid by Blue Gate capital reflects profits earned by the company as operator of the Connaught fund and is set to be distributed to investors by the FCA.
The FCA found the operator had failed to carry out adequate due diligence on the fund prior to taking it on and neglected to investigate potentially serious issues of which it was aware.
According to the regulator Blue Gate Capital also failed to communicate with investors in a way which was "clear, fair and not misleading".
The City watchdog said: "Blue Gate and the FCA reached full agreement on all facts and issues of liability and penalty but Blue Gate did not agree the issue of whether it should pay restitution, choosing instead to make use of the FCA’s partly contested case process."
Mark Steward, executive director of enforcement and market oversight at the FCA, said "significant and serious deficiencies" existed in the fund at the time Blue Gate Capital became operator which left investors "exposed and unprotected".
He added: "In total, the FCA’s actions in response to the failure of the fund, have led to investors receiving back, in net terms, the value of their investment in the fund."
Capita Financial Managers
In 2017 the FCA also publicly censured Capita Financial Managers, the operator of the Connaught fund prior to Blue Gate Capital taking over, and ordered it to pay as much as £66m to investors.
But, as with Blue Gate Capital, the operator avoided a multi-million pound fine after the regulator agreed it would no have been able to make the restitution payment if a financial penalty was imposed.
Capita Financial Managers has so far paid out more than £58m since the censure.
rachel.mortimer@ft.com
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