FCA closes in on Connaught suspects

The Police have launched an investigation into the collapse of Connaught, the fund that notoriously brought down the industry’s biggest bridging lender.

The jaws are well and truly closing on those responsible for the Connaught scenario, as Treasury Economic Secretary, Andrea Leadsom, confirmed that the Police are investigating the collapse of the fund that brought down the industry’s biggest bridging lender.

Investors suffered heavy losses as a result of the Connaught downfall, which was the primary facility backing Tiuta, a collapsed bridging lender that provided regulated short-term mortgages.

The Series 1 fund, which backed Tiuta and its subsidiaries, was suspended in March 2012 by the FSA after a catastrophic shortfall was discovered.

After taking a barrage of questioning from Alun Cairns MP and other members of the Connaught Action Group at the House of Commons yesterday, Andrea Leadsom, Treasury Economic Secretary, said: “In addition to the FCA, 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 have been looking at this case, I can confirm that they are. This work is very much ongoing.

“The FCA has been working very closely with the law enforcement agencies, to identify and pursue avenues that will yield the best outcome for investors.”

Leadsom stated the FCA has disclosed information to the Police, and to the administrators of the firms involved in order to help them with their inquiries.

Cairns said earlier in the debate: “Questions should be asked why unregulated funds were being recommended to investors in the first place, clearly the times where they would be recommended are very limited.”

Leadsom responded in defence, stating that the FSA had taken a number of steps to protect consumers.

“In May 2011, they altered Tiuta’s permission so it can no longer carry out any new regulated mortgage lending, and issued an alert to consumers who sold the fund.

“In June 2011, the FSA wrote to all financial advisors who sold the fund, asking them to review sales and to contact consumers where there may be risks of unsuitable advice, and set up a page on FSA’s website, for consumers and firms to receive information on the fund.

“In August 2011, they required Tiuta to contact Connaught Management Limited to change its marketing materials, so they no longer described the fund as low-risk guaranteed.

“Finally in June 2012, The FSA altered Tiuta’s permission to ensure funds from redeemed loans were returned to the Series 1 fund.”

Victims of the Connaught Income Fund scandal earlier this year pressed the FCA to issue a ‘restitution order’ forcing Capita to make good investors’ losses.

They alleged that Capita did not do enough to blow the whistle about concerns it had over abuses and shortcomings in the fund’s operation.

When asked about the consequence of Capita Financial Limited, whether it was negligent in its operation, or breached its duty of care to the consumers, Leadsom said:

“There have been many questions into how that apparent ability to avoid culpability can have been allowed to happen, and how it can be avoided in future.”

Leadsom continued: “The government and the FCA have taken the allegations very seriously, and the FCA is carrying out its own inquiries.

“However, the requirements of an operator of an unregulated fund are limited under FCA rules.”

When pressed further for a comment on whether the FCA has made a restitution order against Capita, Leadsom continued: “The Government and the FCA are considering all the different avenues, by which those who have suffered as a result of this matter, may be able to obtain compensation, but I can’t comment any further at this time.”

Leadsom also highlighted that for investors still wishing to make a complaint, the deadline is fast approaching, and if the case is to go to court - it depends on those causes of action.  

The insolvency reviews for those companies involved will also be reported in the near future, which could prove a major factor in the next stage of the investigation.