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.