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TLI on the hedge of a global battle

Towry Law faces prolonged and expensive legal action that could result in the IFA firm paying compensation of more than £300m to disgruntled offshore investors.

It has been alleged by investors that Towry Law International has missold hedge funds and geared with-profits policies around the world.

The Hong Kong Securities and Futures Commission and the Commercial Crime Bureau of the Police are investigating the collapse of two hedge funds sold by TLI.

An ex-consultant of TLI told MoneyMarketing that a law firm in Hong Kong is preparing to take legal action on behalf of 70 to 80 investors over allegations that they were missold the Global Diversified Trading (GDT) and Global Opportunities Trading (GOT) hedge funds.

Both hedge funds were managed by Hong Kong-based Asia Financial Asset Management for around 1,000 clients. About £30m was invested in the two funds but reports by liquidators Deloitte & Touche reveal that less than 3 per cent of assets have been recovered since the funds collapsed in late 2002.

This is the latest development in a troubled 18 months for TLI, which has included the closure of offices in South Africa, Spain, Belgium, Ireland, Malaysia and Cyprus as well as the departure of a number of senior staff, including managing director Bill Tatham at the end of March.

John Simmonds, managing director of Towry Law Group in the UK, has taken over Tatham&#39s responsibilities. TLI still has offices in Hong Kong, Dubai, Bahrain and Tokyo.

Last year, an action group of investors was formed in Cyprus to seek compensation over allegations they were missold geared with-profits policies.

One investor says: “I have documents to prove that Towry Law said geared with-profits were a low-risk and capital-protected product. But it has been shown to be a speculative investment. We trusted Towry Law but some people have lost everything.”

TLI is believed to have sold about £200m of geared with-profits policies, such as Scottish Mutual and Clerical Medical bonds. Gearing investments can increase returns but it can also multiple losses. With the decline in with-profits bonus rates during the bear market and the imposition of MVAs, one of the banks lending money, Guernsey-based NM Rothschild, has asked clients to set aside more money or collateral to cover the loans.

Clients unable to provide the extra money have been forced to encash their policies to pay back the loan. They are then hit with heavy exit charges as the MVA on the with-profits bond multiples with the gearing.

TLI has repeatedly denied misselling geared with-profits policies, as well as GDT and GOT, and has pledged to fight any legal action.

Towry Law Group PR director Fiona Cornes says: “TLI was not the fund manager of GDT and GOT. We conducted due diligence into the funds and offered genuine professional advice in good faith to our clients at the time.”

The ex-consultant says TLI initially marketed another product, Circus Capital 1 dollar Protected Growth Fund, as a low to medium-risk investment but it declined in value by 41.3 per cent in the first three months of 2004 after the sale of Scottish Mutual and Prudential with-profits policies.

It is estimated that TLI clients have invested about £80m in the fund, which invests in with-profits policies and uses gearing to try to enhance returns.

Circus Capital director Paul Robinson says: “As you will be aware, the fund has borrowed money to purchase some of its investments. Where those investments are expected to yield less than the borrowing costs over the next few years, then the board feels it is appropriate to sell these policies.”

The ex-consultant says TLI was well remunerated for selling these three funds. He said PGF paid up to 8 per cent up-front commission as well as an 0.5 annual management fee of the geared amount. He adds that TLI was paid up to 5 per cent up front for the hedge funds. For offshore with-profits bonds, commission is generally up to 5 per cent and this is geared along with the investors&#39 investments.

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