Stewart Ford, the founder of Keydata, has written to Mark Hoban, the Financial Secretary to the Treasury, calling for a public enquiry into Lifemark.
Ford says that the “regulatory stitch-up” in relation to Lifemark could cost £750m and has promised to sue the FSA and the CSSF, Luxembourg financial services regulator, as well as the PwC and KPMG, in both his own name and on behalf of Keydata investors.
He says that both the FSA and CSSF caused Lifemark’s liquidity problems and are now looking to vindicate their actions by preventing a recovery. Ford has also called on Hoban to suspend principal members of the FSA Enforcement team working on Keydata being prevented from any further involvement on the future of Lifemark.
“The decision to place Lifemark into administration had nothing to do with the protection of investors’ best interests”
Ford says: “The decision to place Lifemark into administration had nothing to do with the protection of investors’ best interests. Indeed, there was no reason to worry on investors’ behalf; the portfolio was delivering as expected and was projected to continue to do so.
“The catalyst was rather concern within both the FSA and the CSSF over ensuring the payment of PwC’s massive fees as the administrator of Keydata and a need to vindicate the inept action previously taken by the FSA against Keydata.”
Ford says that while the FSA and CSSF have opposed bondholder-led proposals for Lifemark, it has backed PwC-brokered proposals on poor terms for investors. (article continues below)
Bondholders are due to vote in February 2011 on a long-term rescue deal for Lifemark, currently being developed by CarVal and PwC, in partnership with Norwich and Peterborough Building Society. Ford says that Dan Schwarzmann, Keydata administrator, has warned that if bondholders reject the deal they could risk forfeiting their rights to compensation.
Ford says: “This puts bondholders in a Catch-22 situation, faced with having to accept the rescue deal proposed, no matter how unfavourable it may be.”
He adds: “The FSCS’s announcement takes the pressure off the regulators by promising to reduce, at least in part, the detriment they are choosing to create for the investors of Lifemark. But, the path to compensation, whether via the FSCS or a professional negligence claim against their financial adviser, is lengthy, uncertain and fraught with complexities.
“A successful rescue is core to the interests of the UK financial services industry. Otherwise, IFAs and investment product providers must bear the cost of the increased levy that would flow from the payment of compensation under the FSCS. Furthermore, IFAs face being hit with increases in the cost of their professional indemnity insurance cover, if mis-selling claims are successfully brought. This increase could potentially drive hundreds of IFAs out of business. It is therefore critical from the perspective of IFAs and investment product providers that investors’ losses should be kept to a minimum.”