The FSA and Arch Financial Products are preparing for an Upper Tribunal battle as the regulator seeks to ban chief executive Robin Farrell and senior partner Robert Addison and fine them a combined £850,000 for “reckless failures” relating to Arch cru.
The regulator published decision notices this week against Arch FP – the fund manager behind the collapsed Arch cru funds – Farrell and former Arch FP compliance officer Addison.
Money Marketing revealed last month the FSA was pursuing three separate enforcement cases in relation to Arch FP, although at the time no details were made public.
The FSA says it would have fined Arch FP £9m for its misconduct, but the firm does not have sufficient resources and may be subject to claims from future creditors.
The regulator is looking instead to issue a public censure against Arch FP while fining Farrell £650,000 and Addison £200,000. Arch FP, Farrell and Addison have referred their cases to the Upper Tribunal.
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 FSA says Arch FP caused the Guernsey cells to enter into four transactions where Arch FP and related parties stood to make gains at the expense of the Guernsey cells.
The regulator says a deal involving the Guernsey cells buying shares in Arch FP’s parent company, Arch Group UK, generated a personal gain for Farrell of £492,359, which was not disclosed to non-Arch FP Guernsey cell directors. Farrell says the profit was disclosed.
The FSA says: “Arch FP put its own interests ahead of the Guernsey cells’ interests and, being aware of the risk, recklessly failed effectively to manage the many conflicts arising out of the transactions.”
A statement from Arch FP says: “We believe the FSA has approached the investigation with a predetermined view as to alleged fault. We have no choice but to refer these notices to the Tribunal.”
The Guernsey cell companies have brought three legal actions totalling £330m over failures in the management of the Arch cru funds, including a £150m damages claim against Arch FP and a £20m claim against Farrell. Arch FP and Addison have launched counter-claims.
Wingate Financial Planning director Alistair Cunningham says: “I think most advisers will be relieved when the industry can move on from this debacle, but it is clearly important that the FSA pursues and fines anyone it believes has not acted in investors’ best interests.”