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Watchdog hands out £260k fines over Arch cru collapse

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The Guernsey Financial Services Commission has handed out fines to the Arch cru administrator Bordeaux and three of its directors for their role in the collapse of the funds.

Bordeaux has been fined £150,000, while directors Peter Radford, Neal Meader and Geoffrey Tostevin have been hit with penalties of £50,000, £30,000 and £30,000, respectively.

In addition, all three have been barred from senior positions in regulated businesses for at least five years.

The GFSC says: “The Bordeaux directors demonstrated a consistent and serious lack of appropriate competence, judgement and diligence.

“Their conduct demonstrated a lack of understanding and attention to the legal obligations of Bordeaux.”

Bordeaux was the designated manager and administrator for the Guernsey-based Arch cru funds from January 2007 to December 2009, including its 26 incorporated cells, in which time Radford, Meader and Tostevin were directors and controllers of the business.

An investigation by the GFSC found that responsibility for determination of the net asset value of the funds was delegated to Bordeaux by Arch Financial Products.

However, because of delays by Bordeaux in reporting  these figures, investors were not provided with up to date information, while investment manager while Arch was able to execute trades on the basis of more recent data.

“This could have led to the creation of a false market as independent investors would have dealt, or considered dealing, on indicative sale prices that were not properly reflective of NAV,” the regulator says.

The regulator also says that prior to October 2008, Bordeaux calculated a given investment cell’s NAV on a “par plus accruals” basis, meaning it would simply add the expected income from loan notes to the previous month’s figures.

This may explain why the NAVs at the end of February 2009 were substantially higher than in March and April, after regulators stepped in to suspend the fund, the GFSC says.

In addition, the Guernsey watchdog says Bordeaux was “totally reliant” on Arch for valuations of unlisted securities.

The ruling comes seven months after the FCA won its legal battle against the fund manager behind the collapsed Arch cru range.

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Image courtesy of Stuart Miles at FreeDigitalPhotos.net

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Comments

There are 4 comments at the moment, we would love to hear your opinion too.

  1. These people should be barred for life, what is to stop them doing it again. “The Bordeaux directors demonstrated a consistent and serious lack of appropriate competence, judgement and diligence”. This was an FSA approved company and when it went wrong they blamed the advisers. The FCA won its battle against the fund manager so why did it not get all the money back? The ARCH CRU case and many others will be blamed on the IFA community and FSCS fees will continue to rise. The whole compensation scheme, fines and regulation should be fully reassessed, all fines meed to go into to provide a robust and strong regulator. Last one out lock the door please!

  2. Correction Ken ~ The FCA does not “approve” anything, it merely authorises and has pointed out on several occasions that the former should not be conflated with the latter. By this line of reasoning, the FCA is, in effect, saying that it’s prepared to authorise virtually any old toxic junk, provided the application forms have all been filled out to its satisfaction. Thus, when said fund or product comes apart at the seams and plunges to earth in flames, it can point its finger at the intermediary community and blame those who recommended said fund or product on the grounds that they “failed to undertake adequate due diligence”. It’s called the blame game. A total abrogation of responsibility, with which the FSA and the FCA have for far too long been allowed to get away scot free. What kind of regulation is that? A complete and utter disgrace.

  3. Well, with Bordeaux being a foreign company with no connection to the UK I am struggling to see why it’s the FSA/FCA’s problem at all, but let’s not let facts and geography get in the way of a good moan, eh lads?

  4. Adam Smith ~ Your point is well made, though the issue is that ArchCru’s funds and products were marketed in the UK. I’m not sure if they were authorised by the FSA/FCA, but advice on the part of UK authorised intermediaries to invest in them IS regulated by the FCA, which is why UK authorised intermediaries have been held responsible by the FCA.

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