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Keydata and offshore firm drained £80m from Lifemark

Over £80m in fees and commissions were paid out of Lifemark to Keydata and an offshore-based vehicle incorporated in the British Virgin Islands, company documents have revealed.

A draft document posted on Lifemark’s website shows that it paid BVI firm LAS Global Limited £38m as part of an agreement giving it 10 per cent of all client funds invested in the vehicle’s life settlement bonds for advising on and introducing distribution opportunities.

Lifemark, which was set up by Keydata founder Stewart Ford to continue the investment product behind the Keydata secure income bonds 1-3, also paid Keydata, which Ford also founded, £20m in total up-front fees. Lifemark paid Keydata £21.5m of trail commission between 2006 and 2009 with a further £29m due to be paid between 2010 and 2019.  

Keydata received an upfront 2.5 per cent commission for funds invested in the bonds and 2 per cent per annum for interest on income payable for each bond.  Keydata paid IFAs 3 per cent initial commission and 0.5 per cent trail. Over £40m in total fees and commissions were paid from Lifemark to Keydata up until 2009.

Keydata International, the offshore sales arm of Keydata was paid a 5 per cent fee of all funds invested through initial commission charges and trail.

LAS Global, whose ownership has not been confirmed, is a company incorporated in the British Virgin Islands and is described in the document as a go-between for Lifemark, tasked with negotiating contracts for administrative parties, introducing and advising on distribution opportunities and providing support on “operational matters” related to the bonds. 

KPMG Luxeumburg expects to publish confirmation of the fees and commissions paid once they have been audited in the coming days. However, neither it or PricewaterhouseCoopers UK could confirm the identify of the beneficial owner of LASG. 

Keydata accounts show that salaries and bonuses paid to the firm’s directors totalled £3.7m at the end of September 2008 and £4.1m a year earlier.  The highest paid director was paid £2m in aggregate for the two consecutive years. 

Around 23,000 Keydata clients invested £349m in Lifemark through plans including the secure income bond 4, secure income plan and the defined income plan.  Lifemark has halted income payments to investors to preserve liquidity and maintain the value of the policies.

High Court documents filed on July 17 revealed that Luxembourg regulator, the CSSF, had been aware since the start of 2009 about a predicted “liquidity gap” from 2012-2013 in relation to the Lifemark bonds. 

US hedge fund CarVal is understood to have provided Lifemark with short-term funding to help sustain the company and preserve the value of policies held by thousands of Keydata investors.

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Comments

There are 7 comments at the moment, we would love to hear your opinion too.

  1. Neil F Liversidge 14th June 2010 at 11:40 am

    This illustrates perfectly the downside of the FSA’s strategy of micro-regulating IFAs whilst totally failing at macro-regulation of product providers. If a product provider such as Keydata is FSA authorised then IFAs should reasonably be able to expect that it is properly run; let’s face it, none of us have the ability or facilities to drill down to the kind of detail that would warn of a disaster such as this. I have put NO clients in Keydata thank God, partly due to analysis but largely down to an instinctive mistrust and disbelief in what it claimed to be achieving. However I should be able to rely on the FSA when it rubbber stamps a provider but clearly I can’t, so what are we paying for in our FSA fees? Disproportionate mega-compensation for directors should be a red flag at any financial firm but the FSA was apparently oblivious to it. Just think, if the nilllions spent on RDR and TCF had been spent properly policing product providers, how much less potential for harm would there have been? I’ve seen this scenario repeat itself too many times over the last 25 years starting with Barlow Clowes and it is tragically unnecessary. It is always the same pattern; a provider comes up with a magic formula promising low-risk returns, it sucks in a ton of money, the provider goes tits up and there’s a big hole in the books. If the perps are ever caught they do a minimum amount of time in a cushy open prison type environment. To prevent these massive frauds we need prevention and deterrence. At the front end (prevention) we need an FSA that looks very hard at all providers and monitors their activities rigorously, including director pay. At the back end (deterrence) we need the kind of judicial penalties that get imposed in the US, e.g. 100 years for Madoff et al.

  2. Right on the nail Neil ~ as usual, the FSA has been exposed as having concentrated its resources and firepower almost completely at the wrong targets (i.e. the lowest risk ones) and, as a result, missed the really big risks.

    And all Adair Turner does is demand constantly more staff, more money and more power. How about using what you already have more effectively instead of blowing over £20m on bonuses for the staff and directors?

    This is what you get when you have a totally unaccountable, unregulated monster quango. But it seems at last that change could be not too far away, well overdue but better late than never.

  3. Isn’t part of the problem that the FSA now doesn’t consider Keydata to have been a product provider?

    We never used Keydata for a similar gut feeling about them.

    How come no-one at the FSA ever had a gut feeling about them?

  4. I and many other IFA’S have gut feelings about a few providers, and proved to be correct the FSA just has not got any guts!! and seems to point blank refuse to look into the so called low risk returns fund providers until all hell breaks loose, and the adviser then off course is the target,well it is an easier target to hit !!

  5. peter hilton (keydata victim) 14th June 2010 at 2:58 pm

    But the FSA WERE investigating Keydata – for 4 years. And they were investigating its proprietor and principal Director, personally, too.( Unfit person etc, etc dozens of “failures to ensure, failures to inform, failures to act with integrity” etc.including accusation of taking undiclosed £4M for personal use…….

    They knew that Keydata’s marketing material contained misleading and untruthful information.

    Problem is they didn’t tell anybody, the Company was allowed to carry on completely unfettered – and so another £350M went into the leaky labyrinth which was Keydata, Lifemark, Meditron, LAS Global etc, etc.

  6. The problem for the FSA is that they have no duty to protect the consumer. That is why they could not say we are concerned about Keydata. But perhaps they should have ring fenced the funds under scrutiny and any new funds invested to ensure consumer confidence until they had drawn conclusions either that the firm was / is ok or that they were not happy and then took action.

  7. Simon Schuster 16th June 2010 at 4:20 pm

    Speaking of draining funds – surely someone should be investigating the fact that Dan Schwartzman of PWC has burned £11million (yes thats right £11 million) and counting of Keydata funds in the administration – for what???? One should also check the CarVal deal which instead of favouring investors in Lifemark is based on providing further funds to Schwartzman for the administration – so PWC who were the auditors of SLS and Lifemark can rack up further fees and squirrel away monies…. who are the real crooks???

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