Investors in collapsed Connaught Income Fund accused UK financial regulator of ‘lying’ over £ 104million loss they suffered in an attempt to avoid paying them compensation additional.
The Connaught Action Group, which represents around 2,000 investors in the fund that went bankrupt in 2012, said on Monday that the Financial Conduct Authority was deliberately underestimating the amount owed to it in an attempt to end the scandal.
It demands a ‘correction’ of recent FCA statements, as well as the return of an exceptional £ 24million and compensation for lost revenue, indirect losses and opportunity costs.
If the FCA disagrees, the group has said it will file a lawsuit against the regulator’s new chief executive, Nikhil Rathi, as well as its chairman Charles Randell.
Last week a independent review in the Connaught collapse, per attorney Raj Parker, argued that “the regulation of affected entities and individuals related to the fund was neither appropriate nor effective”. He concluded that the FCA “could have acted more effectively to protect the investors in the fund”.
Investors believed this conclusion would result in a new compensation scheme being put in place to account for the investor’s total loss of £ 104million, as noted in liquidator Connaught’s report. A similar program for investors of the failing mini-bond issuer London Capital and Finance has been announced the same day Connaught magazine has been published.
However, the FCA responded to Parker’s review claiming that the fund had “total principal losses estimated at £ 79million” – and stating that “investors received more than £ 80million” from an earlier reparation program.
According to a person familiar with the FCA calculation, the figure of £ 79million reflects the target of the reparation regime established by the fund’s original operator, Capita Financial Managers. This was designed to return investors their principal less the amounts they received in interest or dividends.
But the Connaught Action Group has always maintained that the “main” capital lost was the £ 104million listed in the fund’s books, and any additional income due cannot be deducted from the total.
He accused the regulator of misleading the public by suggesting that investors had been fully reimbursed. “The FCA is lying when it says that the investors in Connaught only lost £ 79million and were therefore fully compensated,” said group leader Mark Bishop.
“You can’t reduce the income and pretend it was part of our original capital,” he explained. “It was paid as income and taxed as income.”
In addition to the £ 24million of unrecovered capital, the group is demanding compensation for the interest they lost on their money when Connaught went bankrupt, as well as the opportunity cost of not being able to access their capital. or invest it elsewhere.
The FCA has denied misleading investors and said the amounts owed to them have already been fully explained.
“We made it clear our approach to calculating Capita’s repair payment,” said a spokesperson, noting that the purpose of the payment was to return the fund’s investors to their capital investments less the amounts they received in interest and by way of redemptions, distributions, payments or dividends. An interest rate of 0.52% was also applied to payments, the spokesperson added.