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500 EEA investors join £60m legal claim against FCA

A class action against the FCA by investors in the EEA Life Settlements fund has reached £60m after 500 claimants joined the effort.

The number of investors jumped from 90 at the end of January to 514 by the deadline of 14 February.

The claimants have a total of £47m invested in the fund, and have added simple interest at 8 per cent over three and a half years to the claim, taking its total value to £60m.

The EEA Life Settlements fund has been experiencing difficulties since December 2011, when the fund was first suspended after the FSA labelled life settlement funds as “high risk, toxic products”.

Peter Lihou, who founded the group in February 2014, says the regulator’s statements were “factually incorrect” and caused a run on the funds.

He argues the regulator infringed human rights law by denying investors access to their funds.

The group will send a formal letter to the FCA setting out the claim, and if a settlement is not reached with the regulator it will take the case to the European Court of Human Rights.

Lihou says: “I am delighted that we have passed the 500 mark. Our lawyer is currently drafting the proposal to the FCA and depending on the regulator’s response, we will have four weeks to send our case to the European court.”

An FCA spokesman says: “The FCA remains of the view that our intervention in this market was justified.

“The FSA issued the guidance for consultation to address urgent concerns about the growing risk of consumer detriment posed by the traded life policy investments market.”

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Comments

There are 12 comments at the moment, we would love to hear your opinion too.

  1. I was under the impression that the Regulator was immune from all civil actions and sanctions. (Rather like Parliamentary Privilege) Can someone please correct me?

  2. I am not sure about this. Part of me really wants to see the FCA hauled over the coals for this and lose the case and in my humble opinion would be the correct outcome. This lot really do need to be taken down a peg or two and as our parliament cannot do it, then I hope Europe can. The problem is that if they do lose it then it will be the industry that will pick up the tab for legal costs and settlement in higher fees. From our point of view it will be a no win outcome. The investors win it will cost us a lot of money, if the FCA win it will give them total carte blanche for ever and a day

  3. I share your frustrations Marty and wish this action wasn’t necessary.

  4. In theory, Life Settlements are a logical solution to a market for someone who wants to sell their policy and someone who wants to buy, it is the others in the food chain who may be questionable. The loseers should have been the insurers who had priced in lapses rather than sale and assigning on whole of life policies.

    A perfectly drinkable liquid can be made toxic I(or vinegar) by lack of attention of the person creating the drink or something being added to the mix which makes it poisoness. Blow fish and Pork are other examples of something you can eat, but only if cooked according to the recipe.

    Bearing in mind that it was Margaret Cole who has since left the FSA who labelled the Life Settlement sector in general toxic before resigning, it is interesting that Dr Debbie Harrison who has since been appointed to the FSCP described life settlements in a (pre) Life Settlement price (collapse) report in general as being an interesting non correlated asset class and in particular the Keydata ones where she drafted a glowingly good report, it would be interesting if ANY journalist could actually get a comment on the subject from her, but journalists haven’t even managed to get a “no comment” from her.

    The FSA brought down Keydata by arguing that the error with their ISA structure which made them non eligible for ISA status was in discussion with HMRC about resolving the issue/error, but the F-pack decided to have them deemed insolvent which brought down the pack of cards and it took opening the can of worms to identify that MILLIONS had disappeared along with David Elias right from under the FSAs noses as well as other parties in the food chain. None of which could have been identified by small IFA firms who according to Rory Percival are allowed to rely on facts quoted by other regulatory firms especially those authorised to handle client monies. We now know to our peril that we cannot rely on what the F-pack say or do until after the event.

    Due to the failure to regulate (certain Drs in America who certified life expectancy on plans), probable failure in custody and probable failure in structuring the model (for the Keydata portfolio which I would love to see now after the event), I fortunately have NO clients in EEA plans, but I can see why people would have considered or recommended them (for a proportion of a portfolio)

  5. ……and then we have the proposal that annuities might become tradeable.

    Had an accident, not your fault?

  6. They may or not be entitled to a payout but rest assured there is only one group of people that will end up footing the bill with increased levy and charges – the embattled IFA!

  7. If there’s any justice, the FCA would, if it loses, be banned from increasing its levies by £60m (and its almost certainly colossal legal costs) to pay this bill. Sadly, such an order is probably beyond the powers of even the ECHR so it’ll be extorted from the rest of us with only one outcome if we refuse to pay.

  8. @Harry Katz
    Contrary to popular belief the FCA can be sued but the options for doing so are very limited. These can be found in Schedule 1 of FSMA, s.19. There are two potential situations. Where the FCA act in bad faith and where it breaches the Human Rights Act.

    The EEA investors in this instance appear to be relying on the latter. However, it is normally a requirement to take the case through the domestic courts before it can be considered by the ECtHR (who are currently sitting on 69,750 pending cases as at 31 Jan).

    In reality this is one of the longest of long shots. In the current regulatory environment it seems unlikely that a decision will be made that effectively muzzles regulators across the EU and stops them expressing an opinion.

    It’s also difficult to see how what the FSA said can be demonstrated to be factually incorrect. If the funds were fundamentally sound then the current situation is merely one of liquidity and investors will get their money and investment returns back over time. On the other hand we already know that there have been questions raised in respect of how the fund assets were valued and the assumptions used for this. Recently the EEA fund has changed the way it values the underlying assets resulting in a further 26% drop in values. So, whilst the FSA might have been the catellyst in all this it stretches credibility to suggest that they are solely or mainly responsible.

  9. @ Grey

    Thanks for that. Least ways up you have confirmed my gut feeling – fat chance and no chance. The regulator will be free and clear and as others have pointed out UK financial services (not just advisers) picks up the tab.

  10. @GA – I don’t disagree with you, expect it is somewhat of a double standard when the FCA will in all likelihood be asked to endorse the UKs version of Life Settlements i.e. a secondary market for annuities! They also appointed Dr Debbie Harrison to the FSCP despite the fact she issued a glowing report on the theory of Life Settlements and in particular of the Keydata Life Settlements which after the HMRC debacle of the ISA structures and the FSAs method of resolving the issue acted as a catalyst for the FSA’s comments about ALL Life Settlement plans followed by the collapse of the market for Life settlements, which must in turn have not only devalued EEA, but the sale value of the assets held by the FSCS on behalf of Keydata Victims.
    Come on Dr Harrison, tell us what you think of the idea of a secondary market for annuities?

  11. @Grey Area

    The ECHR requirement is that you have exhausted domestic remedies. As the FSA/FCA hide behind immunity and are exempt from libility in damages, it is possible to exhaust domestic remedies without going through the UK courts. There are legal precedents for this in the much more serious international human rights cases where individuals have no reliable legal system to go through.

    it is not necessary to demonstrate the liquidity of EEA, only that the FSA acted unlawfully by not following their own legal process (FSMA 2000) and by deliberately and recklessly issuing statements without attempting the least harmful means to achieve their regulatory aims and thereby unlawfully restricting human rights. There were several alternatives that would not have caused the panic they created. The most obvious being simply issuing a statement that did not contain inflammatory language, as they in fact did a few months later after the consultation.

    The only reason EEA recenty revalued the NAVs was that they believed (correctly) some investors would want to cash in before the maturity of the policies. Damage done to the secondary market by the FSA has resulted in the secondary market being discounted – in this sense the FSA created a self-fulfilling prophecy. But anyone who understands this market should be aware that the value of policies that are retained until maturity and the premiums paid until then, remain as they were when they were acquired. Other comments about the valuation of the fund as a whole and the methodolgy employed remain the subject of speculation. There are those who strongly believe the fund was mismanaged and there those who believe it was a shining example of good practice. None of this matters in relation to the class action because it is the FSA/FCA in the dock, not EEA or the IFA community. Neither is the issue whether or not they were right to act, that is what they’re there for. But, as with the Life Insurance mess last year, they need to learn how to act appropriately and legally. Otherwise they will continue to damage the credibility of the financial services sector and completely lose what vestige of moral authority they currently cling onto.

    It is just a great shame that the IFA community will pick up the tab and whilst I wish this wasn’t the case, it isn’t reason enough to run away from the battle.

  12. Well said Peter Lihou. while I have no clients who were invested in EEA.

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