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Guernsey cells win £22m legal battle against Arch Financial

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.

In April 2012, the board of SPL launched a £20m legal claim against Farrell. It has brought a total of three legal claims against Arch Financial, totalling £330m.

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.

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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) 19th December 2014 at 12:11 pm

    For “SPL” and “Guernsey cells”, read ‘Capita’ – for it is that august body behind these actions.

    Of course, a less cynical pundit than myself might think that this pointless action was brought with the sole intention of diverting attention from Capita own woeful failings as ACD of the CF Arch cru funds.

    However, I should be grateful of the assistance that Capita gives me, when it comes to due diligence. After all, I only need to see “CF” in front of a fund’s name to know that I should avoid it like the plague.

  2. And yet, according to the FSA/FCA, intermediaries who recommended these funds and products (thankfully I didn’t) should have undertaken more rigorous due diligence and seen all this coming whilst the regulator, for its part, has washed its hands of any such responsibilities.

    In light of Martin Wheatley’s claim that the FCA “is going to be a very different animal from its predecessor”, will its stance be any different when the next train wreck happens? We wait in hope if not expectation.

  3. E L Wisty (an only twin) 22nd December 2014 at 9:56 am

    In my opinion, the CF Arch cru was an abuse of power, with advisers being deliberately chosen to take the rap.

    I, personally, didn’t recommend this fund and had doubts about it at the time. However, I believe that those advisers who did recommend it, had a right to rely on the misleading information that was approved by Capita as ACD at the time, as well as the consistently inaccurate share price information that mislead investors in respect of fund performance.

    While it is obvious that the FSA and Capita both had much to lose from a prompt and transparent investigation, Wheatley could regain some of his tattered reputation if he commissioned an independent commission to assess whether the FSA’s actions were justifiable and without conflict; ie, what due diligence on Arch was carried out by FSA and Capita, whether the FSA acted impartially in binding the FOS to a deal done with Capita behind close doors prior to the conclusion of the FSA’s own report on the matter and finally whether it was proportionate for the FSA to just give Capita a mild slap on the wrist while savaging the responsible advisers.

    I’m not naïve in this respect – as ACD of many other small funds, Capita is a ticking time bomb and the recent closed book fiasco has unveiled woeful incompetence at the regulator. A review into the CF Arch cru affair could present an opportunity for the FCA to mitigate future Capita risks and to evidence that the FCA has distanced itself from the sins of the past.

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