Around 12,000 clients have been warned it is “highly likely” there will be a shortfall in their share of £24m of Pritchard Stockbrokers’ cash assets which were recently frozen by the FSA.
Special administrator Mazars has written to around 6,000 Merchant Capital clients, where Pritchard acted as custodian, and 6,000 Pritchard direct clients, warning of potential losses.
In a letter, seen by Money Marketing, Mazars joint special administrator Tim Ball says: “If there are insufficient monies in the company’s client accounts to meet all valid claims to those funds, all the company’s clients will bear the shortfall pro rata and have an unsecured claim for the balance in the special administration.
“It is my understanding that such a shortfall exists in the company’s client accounts, although the exact amount involved is not yet known.”
Mazars has refused to give an estimate for the shortfall.
A Merchant Capital spokesman says £6m-worth of client monies are frozen with Pritchard.
The Financial Services Compensation Scheme says it treats stockbroking as an investment activity, so it would pay a maximum of £50,000 to clients.
Mazars does not have an estimate of how many clients have assets above this level. Pritchard has not yet been declared in default by the FSCS.
Lowes Financial Management managing director Ian Lowes says: “We expect the shortfall will be recoverable from the FSCS, which, no doubt, advisers will have to contribute to.”
Mazars was appointed special administrator on March 9 after the FSA suspended Pritchard’s permissions due to concerns about the way it handled client assets and monies.
On the same day, structured product provider Merchant Capital said it would transfer all £350m of clients’ non-cash assets from Pritchard to new custodian Reyker Securities but cash assets were frozen by the regulator.
A Merchant Capital spokesman says: “Merchant Capital does not know whether there will be a shortfall but if there is, it is expected to be covered by the compensation scheme.”
Parent company Merchant House Group’s shares are currently suspended pending a review of its finances to determine whether or not it has sufficient working capital for its present requirements.
Earlier this month, Merchant House Group announced it is awaiting payment for shares worth £150,000 after it issued £761,500-worth of shares in February. A spokesman says: “Merchant Capital is separately capitalised and the directors of Merchant Capital are happy with the capital situation.”
Glasgow Rangers owner Craig Whyte was company secretary of Pritchard and is also director of Liberty Capital, a British Virgin Islands-based company which owns 10.8 per cent of Merchant House Group.
Merchant House Group has an IFA arm, Merchant House Financial Services, which was established in December 2010 after the acquisition of the assets of Clarkson Hill which is in default with the FSCS.