The FSA says Arch Financial Products chief executive Robin Farrell made a profit of over £490,000 at the expense of Arch cru cell companies and without disclosing the gain to the cells.
In its decision notice against Arch FP, the fund manager behind the collapsed Arch cru fund range, the regulator argues Arch FP caused the Guernsey cells to enter into four transactions in which Arch FP and related parties stood to make gains at the expense of the Guernsey cells.
It says Arch FP caused the cells to buy shares in its parent company Arch Group (UK) at a price determined by one of its directors without the price being independently verified. The FSA says the conflict of interest was inadequately recorded at the time.
The FSA says non Arch FP directors of the Guernsey cells were not informed that Farrell was going to be selling his personal shares in the parent company as part of the deal for a personal capital gain of £492,359.
The FSA says in another transaction Arch FP caused the Guernsey cells to invest £20.2m into an unnamed company from which the company paid Arch FP and a business associate a fee of £3m each for undefined services. The fee had not been disclosed to non-AFP Guernsey directors.
Arch FP also caused the Guernsey cells to invest in the UK funds’ distributor, Cru Investment Management, which saw Arch FP negotiate more favourable distribution terms with Cru and benefit from increased funds under management.
In another transaction, AFP caused the Guernsey cells to invest in an associated company, which the FSA says “disproportionately benefited Arch FP’s parent company compared to the Guernsey cells”. The Guernsey cells were directed by Arch FP to buy share warrants from its parent company’s nominee which led to a profit of £49,999 for Arch Group.
The FSA announced today it is seeking to ban Farrell and senior partner Robert Addison and fine them a total of £850,000 for their role in the collapse of the Arch cru funds.
Arch FP, Farrell and Addison have referred the matters to the Upper Tribunal.
Farrell says: “This is a nonsense allegation from the FSA. The £492,000 gain was disclosed to directors.”