An adviser is in a dispute with his former client and their new adviser over losses related to the collapse of investment scheme Connaught.
Connaught entered administration in September 2012, following the failure and suspension of its two flagship funds, the Series 1 and Series 2, which invested in bridging loan finance.
Around £118m was invested in the unregulated collective investment schemes, much of it via financial advisers.
In the case of one such adviser, Devonshire Asset Management, an ombudsman ruled the firm was wrong to advise a client to invest in Connaught, and ordered it to calculate whether the client had lost out and – if he had – to pay him back.
Devonshire's director, Omar Salam, carried out the calculation and came to the conclusion the client had not lost out, so only paid him £300 in recognition of his upset.
But when he received further demands from his former client, Mr Salam closed his Devon-based business, which is currently in the process of having its authorisation cancelled.
Now Philip Milton, who is the client’s new adviser, has argued the compensation has not been calculated in line with the ombudsman’s ruling, saying it should be on the basis of the single Connaught investment rather than the whole portfolio.
Mr Milton said: “Of course it is unfortunate that a client’s investment upon which they advised went sour but [Devonshire Asset Management] should never have recommended it in the first place.
“At the end of the day, the investor relied upon their guidance, they made a big mistake and afterwards they must act in accordance with the rules and pay-up.”
But Mr Salam has insisted he calculated the compensation according to the ombudsman’s guidelines.
He said that only £20,000 of the original £99,000 investment went into Connaught and that even if this was valued at nil, the whole portfolio would have made a positive return.
Mr Salam said: “If the purpose of the compensation is to put the client in the position he would be in had he not received unsuitable advice then our calculation does that.
“We cannot put the firm in a position of risk where we might be paying out money and not be getting back money.
“We had to close the firm down because this put us in a position where we couldn’t go forward.”
Mr Salam added that the client has not handed over the Connaught shares, as the ombudsman ordered and that the client had received nearly £9,000 in payments from Connaught's administrator Duff & Phelps.
Mr Milton said the client had never refused to sign over the shares and he is not obliged to negotiate a settlement with the firm.
