The Treasury has confirmed that police are considering an investigation into the suspended Connaught funds as MPs question the role played by advisers in recommending the investments.
Speaking in a parliamentary debate at Westminster Hall last week, Treasury economic secretary Andrea Leadsom said police were examining the need for an investigation into the losses suffered by investors.
Leadsom said: “I can confirm there are other law enforcement agencies looking into this matter and I will be urging the police to consider this case very carefully. Members have been interested to know whether the police are looking into this and I can confirm that they are.”
Leadsom and Conservative MP Alun Cairns also questioned the role advisers played in making recommendations on the funds to investors. Cairns has founded an all-party parliamentary group to represent investors who have lost money through the funds. He has also been heavily involved in bringing parliamentary debates on Arch cru investor losses.
Cairns said: “Questions should be asked as to why unregulated funds were being recommended to investors in the first place. Clearly the times where they would be
recommended are very limited.”
Leadsom went on to question why unregulated collective investment schemes were recommended to retail clients. She said insolvency reports on both Tiuta and the Connaught funds were due soon.
An investigation will also take place into whether the former FSA failed to protect investors and whether fund administrator Capita failed to flag concerns to investors.
The £118m Connaught Series 1 fund was suspended in March and interest payments were not made to investors. A review was commissioned to ascertain its true value.
In 2012, Money Marketing revealed that investors in Series 1 faced losses of up to 50 per cent. An independent review by Duff & Phelps suggested recoveries would be between £46.5m and £53.2m of the £105.5m used to fund Tiuta.
A decision to wind down the Series 1 and £18m Series 2 fund, which was used to fund another Tiuta subsidiary called Tiuta Development Finance, was made in June 2012. A Series 3 fund, which was not linked to Tiuta loans and raised around £22m, was wound down in July 2012 due to a spike in redemptions.
Connaught Asset Management bought Tiuta International and Tiuta Development Finance – the Tiuta Plc subsidiaries that used the Series 1 and Series 2 funds respectively – for £1 in June 2012. In July 2012, Money Marketing revealed that Tiuta International had been placed into administration by CAM.
The FCA’s rules on non-mainstream investments prevented firms from marketing unregulated collective investment schemes to retail investors from 1 January this year.
Thomas and Thomas Financial Services managing director Darren Lloyd Thomas says: “It is absolutely right that people are held responsible for investors’ money, especially where the funds are unregulated.
“Just because a fund is unregulated, it does not mean they do not have a duty to investors and the FCA remit only goes so far.”
What MPs are saying on suspended Connaught funds:
Tory MP Alun Cairns: “We need to find out what Capita knew about the problems with the fund and what it should have communicated to investors. In fairness to the advisers, they relied on key fact documents which were neither accurate nor adhered to. We’d also like to know how the FCA acted, which should be published.”
Tory MP David Davis: “In this case and a number of others, it is clear the company has been set up as a limited liability structure to prevent compensation demands going back to the parent. The FCA should be asked to look at the acceptability of that approach because it is a way of a company getting the benefit of the reputation of the parent without the compensation.”
Treasury economic secretary Andrea Leadsom: “There are two key issues that I think should be addressed. The first one is the role of the FCA in trying to protect consumers and investors despite most of the entities involved being unregulated. Second is the work that is currently ongoing for the benefit of consumers and investors in order to secure a fair and proper outcome.”
Tory MP Guy Opperman: “It is incumbent on the minister to clarify the legal position. If investors are to sue for their losses, they need to know the date of knowledge of the decline of the fund, the state of the assets at that time and the degree to which the FCA is going to assist in the recovery.”