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FCA wins legal battle over Arch cru collapse

The FCA has won its long-running legal battle against the fund manager behind the collapsed Arch cru range, paving the way to a ban and fine against the directors totalling £850,000.

The legal challenge began back in December 2012 under the FSA when decision notices were issued against Arch Financial Products chief executive Robin Farrell and compliance officer Robert Addison.

At the time the FSA said it would have fined Arch FP £9m, but the firm did not have sufficient resources.

The parties referred their case to the Upper Tribunal, which was heard in May.

The FCA’s case centred on four transactions between Arch FP and the Guernsey-listed cell companies that made up the Arch cru funds.

In one transaction, the cells invested in the parent company of Arch FP, in which Farrell was a major shareholder. 

Addison and Farrell presented the business plan to the cell directors and Farrell was involved in valuing the parent company for the transaction.

In another transaction, a number of the cells provided a £20m loan to a firm – of which Farrell was a director – to enable it to make an acquisition. Arch FP took a £3m fee for arranging the transaction which the FCA says was not properly disclosed to the Guernsey cell directors.

In his judgment, published yesterday, Judge Timothy Herrington backed a public censure of Arch FP, and a ban on Farrell and Addision working in financial services.

He also supported a fine against Farrell of £650,000, and a fine against Addison of £200,000.

In his ruling, Judge Herrington says: “We have found serious failings to act with integrity on the part of Mr Farrell and Mr Addison. The Authority’s guidance and previous cases in this Tribunal leads to the inevitable conclusion that in those circumstances Mr Farrell and Mr Addison can no  longer be regarded as fit and proper persons.”

In a statement, Arch FP says: “Naturally we are very disappointed with the Tribunal’s decision on conflicts but have been vindicated on liquidity management and prudent spread of risk.

“The findings are regrettable but show that Arch was not responsible for the investor losses resulting from the March 2009 suspensions. The FCA and Capita mishandled the situation at an extremely sensitive time for the funds.”

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Comments

There are 3 comments at the moment, we would love to hear your opinion too.

  1. E L Wisty (an only twin) 20th January 2015 at 9:28 am

    “Serious failings to act with integrity” run through the entire CF Arch cru debacle, like “Brighton” on a stick of rock.

    However, this case should only be the beginning, as some long-over due questions need to be asked of the regulator. For example:

    1. What due diligence was undertaken by the FSA prior to granting authorisation to Arch FP and its approved persons?

    2. If it is the case that the FSA simply relied upon Capita’s implied support of the company, what actions will be taken against those responsible?

    3. Who at the FSA took the decision to do a behind closed doors deal with Capita, HSBC and BNY Mellon, and was it accepted at the time that investors might only receive less than half of their capital back from the Payment Scheme?

    4. Did the Capita Payment Scheme deal have full FSA Board approval, and did this approval extend to prohibiting the FOS from awarding compensation claim payments in excess of the Payment Scheme terms?

    5. The FSA found serious failings in Capita’s actions as ACD of the CF Arch funds, yet ruled against any fines (as would normally be expected). Is it true that the FSA took this unusual decision because the Capita subsidiary in question did not have PI cover in its own right, and the Capita parent company refused to pay any more?

    6. If the above is true, why hasn’t any action been taken against the FSA staff, and are they now employed by the FCA?

    It is only right that we are told the answers to the above, as if they are true, the advisory sector would finally have an answer to why IFA’s were targeted with the wholly unfair consumer redress scheme.

  2. 15% undisclosed commission for loan arranging re client money where the controlling minds on both sides of the equation were directors. They get caught and “sentenced” and then they had the temerity to appeal – they should be in prison!

  3. Criminality regulated by the FCA!

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