The board of 18 Guernsey-listed cell companies that made up the Arch cru fund have won a £22m High Court case against the fund manager behind the range.
Arch Financial and its chief executive Robin Farrell have been ordered to pay £22m, plus interest and costs, to SPL Guernsey ICC.
SPL claimed Arch Financial had breached its contract and fiduciary duty and had been negligent, and that Farrell had dishonestly assisted the firm in those breaches.
The judge ruled: “Arch Financial was in breach of its contractual duty to exercise reasonable skill and care.
“The evidence against Mr Farrell is so strong and cogent that I am driven to the conclusion that he knew that what he was doing was wrong.”
Farrell is seeking permission to appeal the decision to the Court of Appeal.
He says: “The findings of the court are deeply regrettable. Unfortunately the findings are underpinned by an appraisal which we believe ignores large swathes of the factual evidence before the court.”
SPL chairman Hugh Aldous says: “This judgment reminds investment managers of their duty of care and that integrity matters.
“The ICC comprised over 20 cells whose shares, listed on the Channel Islands Stock Exchange, were used by the fund managers as a conduit for investments which would not have been authorised for retail investors in the UK.
“In other words, this was an example of regulatory arbitrage, as well as deplorable failure of fiduciary duties.”
Arch Financial 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, when the fund range was suspended.