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FCA launches legal battle over Arch cru collapse

The FCA has kicked off its legal challenge against the fund manager behind the collapsed Arch cru range as it seeks to ban and fine the directors a total of £850,000.

The regulator opened its case against Arch Financial Products, Arch FP chief executive Robin Farrell and compliance officer Robert Addison today. The FSA published decision notices against Arch FP, Farrell and Addison in December 2012 seeking to issue a public censure against the fund manager and ban and fine Farrell £650,000 and Addison £200,000. All three parties referred their case to the Upper Tribunal.

At the hearing in London today Monica Carss-Frisk QC, acting for the FCA, said Arch Financial, Farrell and Addison all failed to manage conflicts fairly. 
She said Farrell and Addison also failed to act with integrity and carry out proper compliance monitoring. 

In a number of transactions between Arch Financial and the Guernsey-listed cell companies that made up the Arch cru funds, Carss-Frisk said inadequate arrangements were in place to manage major conflicts of interest. 

Arch Financial did have some “high level” policies in place to manage conflicts, she argued, but they were not “relevant or significant by way of practical procedure”. 

Carrs-Frisk also argued Arch Financial maintained inadequate compliance records, in some cases creating documents after a transaction had taken place and back dating them. 

In another instance, Arch Financial took £3m in fees for arranging a transaction which the FCA claims was not properly disclosed to the directors of the Guernsey-listed cell companies.

In December 2012, the FSA said it would have fined Arch FP £9m for its misconduct, but the firm did not have sufficient resources and may be subject to claims from future creditors.

Arch FP acted as fund manager of both the Arch cru funds and the Guernsey cells in which the funds were investing. The Guernsey cells invested in assets such as private equity and alternative asset classes such as Greek shipping and student accommodation.

At their peak in September 2008, assets under management totalled approximately £645m, with Arch FP earning around £42m between July 2006 and March 2009, at which point the fund range was suspended.

The case continues.

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Comments

There are 4 comments at the moment, we would love to hear your opinion too.

  1. Can I get this right? Although I have no connection with Arch Cru, it would be helpful to understand that if the Regulator feels the fund managers were culpable, why then does it seem that thus far all the blame has been laid on the advisers?

    Yes. I know the conventional answer – they should have had second sight and known that all was not well. If the funds were that dreadful what was the Regulator dong at the time – drinking tea?

  2. That’s what the regulator does best; drink tea then blame everyone else after the event.

  3. Well said Harry could not agree more

  4. There is something really fishy about this that I just cant put my finger on ?
    I am not entirely convinced we know the whole story, what was the real involvement of the then FSA, Sants himself, Capita, SPl ?

    And like Harry has stated why has most/all the blame been laid at the advisers feet ?

    What will happen if Farrell and Addison say they cant afford the legal bills ? Re -: the recent case thrown out by the judge ?

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