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SFO probes £100m shortfall at Keydata

The Serious Fraud Office has been called in regarding over £100m of potentially missing assets associated with a number of Keydata plans.

Administrator PricewaterhouseCoopers says in recent days it became aware that income from £103m invested in Keydata plans with Luxembourg investment vehicle SLS Capital had not been paid since October 2008. The income shortfall to investors had been filled by Keydata’s own corporate funds.

PwC says it has been unable to satisfy itself as to the safe custody of these assets and information received over the weekend suggests the assets had been liquidated and “may have been misappropriated”. PwC says it is working with the authorities to trace the funds. It also says early redemptions of these products have been dealt with in an irr- egular fashion. PwC is unable to distribute income payments. A total of 5,500 investors in Keydata’s secure income bond 1,2,3 are affected.

The FSA says the SIBs comprise 40 per cent cash and 60 per cent life insurance policies and PwC is unable to ascertain whether the life insurance segment has been held with a custodian.

SLS has four corporate director companies, three based in Labuan, Malaysia, and BWT Capital which is based in Luxembourg. Keydata says BWT Capital was controlled by David Elias, a controversial business figure previously investigated by the SFO. Elias died in May.

PwC is still seeking confirmation on the status of the £2m of underlying assets of products invested with Hometrak SA. No income payments have been made by Hometrak SA since February 2008. Again, PwC says the payment gap was filled by Keydata’s own funds and that early redemptions have been dealt with in an irregular fashion. A total of 240 investors are affected.

PwC says it has received confirmation of the existence of the £349m of assets invested with Lifemark SA but says early redemptions of these products have been dealt with in an irregular fashion and that no early redemptions are currently possible. Income payments will be paid but PwC will deduct tax at source pending tax clarification. Around 23,000 investors are affected. The £191m invested through blue-chip institutions is unaffected but income payments are subject to the same tax deductions.

It says the £2.2bn invested through third-party contracts where KIS acted as Isa plan manager is safe and income payments are now fully operational. PwC says the £70m of funds yet to be invested are safe.

The FSA says the Financial Services Compensation Scheme may be able to help investors who end up suffering a financial loss. The regulator has been investigating Keydata since discovering the firm had been targeting investors with “potentially misleading advertising materials” and after noting tax irregularities.

A sale of Keydata’s business in its entirety has broken down, with PwC now looking to sell Keydata’s third-party business.

A Keydata spokesman says: “The directors only became aware this weekend that the underlying assets of SLS appear to have been liquidated.

“Like a number of other UK distributors of structured products, Keydata was only a distributor of the SLS bonds and is not and never has been connected in any way with SLS or its owners or managers. It would now appear that, along with the other distributors, Keydata has been an innocent victim of a fraud perpetrated by SLS and those connected with it.”

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