Meteor refuses to pay out on FOS Lehman ruling

S&P ratings

The case mentions the slight downgrade from A+ to A by S&P. The definition of the grade are the same with the + sign indicating slightly stronger. Not enough to cause a collapse or entire loss of funds. Here is the definition: "A’—Strong capacity to meet financial commitments, but somewhat susceptible to adverse economic conditions and changes in circumstances."

Posted by: Festinalente

Bad Judgements by FOS

There is a strem of dodgy decisions coming out of the FOS. This needs to be looked into as the industry just can't keep paying out unjustified enrichments.

Posted by: Incompetent Regulators Awards Team

Please explain

There was a similar article the other day. I still do not understand. I didn't think an FOS ruling was optional. Does this mean we can all tell the FOS to take a hike? If so what is the purpose of the FOS? Or does this mean that those with the fattest wallets can flout the regulations? If anyone could shed some light I'd be most grateful.

Posted by: Harry Katz

Binding Unless

My understanding is that Meteor has the option to take FOS decision to judicial review. A court could, but almost certainly won't, overturn that decision. If no judicial review they must pay.

Posted by: Simon Webster

Lehman sense

I am surprised at Harry Katz and his comments. The FOS should be challenged. The rationale in this, and many cases, is dubious in the extreme. we are indebted to the first respondent who states the definition of A and A+. This is a clear case of "who can we hang this onto" and it has to stop. Consoumerism is not about abdicating personal responsibility and nor is it about clarevoyancy. Since when, Harry, did you write to all of your involved clients when a provider shifted from A+ to A ? It is about time that the industry and the professionals in it stood up and stated, quite simply, enough is enough. I for one am sick of sending my hard earned money to a charity fund when councillors and highly paid local authority finance directors fail to pay compesation out of their own resources for £8 million in a dodgy bank, that really was dodgy, and lose it. Justice? the law? bring back common sense. Give em hell Meteor, I hope that you win.

Posted by: Terence O'Halloran

Not at all straightforward !!!

This again smacks of the FOS being somewhat inconsistent or at least confusing me !!! When Exeter Fund Managers got into financial difficulties some years ago, a flood of complaints came into the FOS about their Zero Preference Fund which was promoted as low risk. In April 2001 the risk changed ( confirmed by the FSCS )but the label didn't on Exeter's literature. Many months later Exeter subtly changed their literature's risk label to 'Low to Medium'. Complaints were then dealt with by the FSCS when Exeter went into administration. The outcome was that the FSCS ruled Exeter didn't have to report investors that the risk label had changed and because those investors that bought the investment when the label was correct i.e.Low risk ,then the IFA was innocent too because at the time it was bought by the investor as a compliant sale. Some investors were compensated later if they could prove that they relied upon the material for a specific purpose i.e. school fees at a pre determined point in the future. Confusing but I would be interested to know where the responsibility lies if the risk of a product has sunsequently changed due to economic factors and of course it is rather peverse that such a reliance is placed on the rating agency in this case. Iceland springs to mind !!!

Posted by: Gary Bond

Missing the point

Those who are quoting absolute definitions of S&P 'A+' vs 'A' may be missing the point. Isn't this about breach of an agreement between two parties? Investors entered into a contract that said 'A+' and Meteor went ahead and bought a security that was not 'A+' In the report accompanying the downgrade in June 2008, S&P warned that they expected a 'relatively meaningful deterioration' in Lehman's performance. Regardless of whether investors would have continued, it should have been the investors' choice.

Posted by: Missold Investor

The system is broken

Meteor done wrong, but is the FOS decision just? I think I would have to say a catagoric NO. I wonder if this investment was a direct investment or one via an advised sale as there is a material difference. This case could be a case of fraud if it was an advised sale. If it was advised and the normal practice of that firm was to reccomend B or above or it can be evidence that was normal practice of that firm (isn't Investec only B?,) then whilst Meteor may have made a mistake and there may have been some negligence, it may not have been material to either the advice or the clients decision, i.e. if the adviser had said B was acceptable and had no conerncs about Lehman's then nearly the full loss should stand to the consumer I am afraid. It could be argued there should be a small element allowed for the fact the risk was slightly higher than expected and hence the potential rewad should have been higher, but the fact remains 100% rebate is not just. Is it not time for the FOS to look at all cases of this nature with a legal eye as they are being USED to set precedent when the decision goes against the firm, but NOT when the decision goes in favour of the firm. This is completely unjust and is fine for large firms who will just charge more or withdraw from the market for a time (Barclays) until the system turns/changes, whilst for small firms withdrawel is not an option, nor is (ov er)charging to cover the risk cost of peverse decisions an option. TCF must be applied by the F-pack to advisers as clients, not just BY advisers to their clients.

Posted by: Nameless

Absurd FOS

This adjudication against Meteor shows without doubt the extent to which FOS will do everything they can to make financial services companies pay out for any losses incurred regardless of any objectivity/evidence. In this case a rating downgrade. Did that make Meteor liable- yes according to FOS- How- explain?We all know credit ratings are suspect but that's enough for FOS. Well said Terence; Harry you are out to lunch- they make the big boys pay as well except they have the resources to waste on law. FOS the true consumer champions. If your investment goes up great, if not go to FOS and get your money back- it really is as simple as that!! They will hang it on anything like a minor credit downgrade that has no affect on the actual investment performance. It has gone too far. Harry unlike the big boys any compensation forced on IFAs generally comes directly out of our own pockets- PI cover is a nonsense and waste of money.

Posted by: Johnny B Goode

Misconstrued

Terry I think you have missed my point. I am not referring to the rights or wrongs, merely to the fact that the FOS made a decision which this firm refused to pay. I also recall a bank doing something similar in the past week or so. I’m not arguing that the FOS decision my or may not be in dispute, but if we tried to ignore a ruling of theirs we wouldn’t get very far. I would also refer you to the reply by Simon Webster. In essence if we refused a decision what chance would we have? Most likely the FSA would be onto us like a ton of bricks and before we know it our permissions would be revoked. That is not an even handed approach. It panders to those with the most money.

Posted by: Harry Katz

Agree BUT

Harry's second post is correct in that the decision although wrong can't be disputed by anything except Judicial Review. The decision looks flawed logic as stated by Nameless, but the Judicial Review will not resolve this, it is too late. The FOS system itself is what needs to be changed, it is completely flawed as is proven by the £25million contingency levy we are all about to be hit for despite NO complaints for many firms even going to FOS in the last 10 years, let alone the last year. This should have been an increase in the case fee, NOT in the general levy for a contingency needed to cover others refusal to pay, or pay on time.

Posted by: Phil Castle

Not surprised at all

Yes, it is entirely possible to refuse to obey an FOS ruling. They have no powers of enforcement. The complainant has the option of going to court to get a judgement to enforce the decision. The FSA - now this will surprise you - appears to sit on its hands. There is no instant withdrawal of permissions. This is based on the experience of a client of mine in respect of his former IFA. We are still watching this space to see if the FSA actually does anything.

Posted by: FIFA

Risk Warnings

In the Prima Growth Plan 7 brochure there are three warnings about counterparty risk. However, in light of the importance given to informing potential investors about counterparty investment risk the FOS must have considered it self evident that when an increased counterparty investment risk occurred bewteen an investor handing over a cheque payable to the product provider and the product provider purchasing the security, one of the provider's obligations would be to draw attention to this. I cannot understand why some comments here, especially those from IFAs, are critical of the FOS decision. Surely IFAs cannot possibly condone the view that it was OK to keep this fact about investment risk hidden from investors? In Meteor's brochure the description of this particular investment risk relied solely on the credit rating of the anonymous financial institution.

Posted by: Ken Durkin

Inconsistent and Annoying

I once had a client who had suffered a loss due to a life company missing a deadline, giving misleading information and acting to muddy the waters on investigation. Even a non finance person could see it wasn't right. The FOS did not see anything wrong with it. A downgrade from A+ to A would in my opinion never be enough to make someone say "Hang on - what am I being sold here. I think I only want to go with A+ banks" A is still is strong. The ratings agency here surely has a hand in it as they obviously missed some very crucial points. It seems to depend who you get from the FOS looking at the case in point. Not good enough.

Posted by: Stuart

Mistake and the courts

To Ken Durkin - Whilst I often agree with your comments, I disagree in this case. As said in the article - The drop in Lehman's rating ...was a "material fact" which Meteor should have told investors, ....."I consider it reasonable to say this information may have led Mr & Mrs B or any prudent investor to question.... If this case had gone to court rather than via the FOS, what would the judge have decided? Was this fraudulent musrepresentation, misrepresentation, mistake? How material is/was a donwgrade from A+ to A and would the judge have ruled that teh contract was completely set aside? I don't think so,he might have done if it was downgraded to B, but that is what the FOS decision has actually done. They have effectively set the contract aside when the client "MAY" have not proceeded, but I bet you if they were asked to swear on oath and were honset about it they would confirm they would have still proceeded so this is an unjust FOS decision.

Posted by: Phil Castle

Agree with Missold Investor

Both my IFA and Meteor knew that the counterparty was Lehman Brothers as the Securities for this plan were purchased by Meteor 10th April 2008, their brochure was finalised 14th April 2008. Their responsibility to me should of been to notify me of the change in rating from A+ to A on the 2nd June 2008, the plan came into force on the 18th June 2008. The first that I was aware that Lehmans were the counterparty was after the 18th June 2008. Both Meteor and my IFA failed to notify me, so that I could of made an informed choice. My IFA should of been advising me as this is what I pay for! Just like this couple and many others that were sold this plan, we have been failed by the Post sales responsibilties of Meteor and in my case IFA.

Posted by: Missold Investor 2

@missold investor

Would you swear on oath that had you (as I accept you should have been) told that the bond provider had been downgraded from A+ to A and/or that the counterparty was Lehmans have not proceeded? This is based on what yoo knew (or should have been made aware of) at the time, rather than what you know now. If you can put your hand on your heart/swear that oath, then you would be justified in getting your money back from Meteor. If you could not, then you would not be justified in getting the full amount of your money back from Meteor. The problem is that the FOS are the ones making these judgement decisions for massive sums when situations likke these should really be for the courts anbd NOT for the Ombudsman as the courts require evidence and test creadability of witnesses which the FOS do not.

Posted by: Nameless

@Nameless

The question you are asking sidesteps the essential point. If investors had been given the choice, whatever route they chose would have been their choice and their responsibility. If Meteor selected a counterparty with a lower credit rating than advertised without informing the investors then the decision to go with that counterparty was their responsibility and they had to face the consequences when it went wrong.

Posted by: Missold Investor

@Nameless

The answer is, that Meteor and my IFA failed in their duty to notify me so that I could make the choice!

Posted by: Missold Investor2

@Nameless

You do not know me or what I would of done. Meteor and my IFA failed in their duty, not only me but thousands of other investors and they should be held to account. We should of had the choice! If you are accusing me of fraud, I suggest that you CALM down Nameless.

Posted by: Missold Investor2

Censored

I have responded twice to missold investor above, but both appear to have been censored. They were not rude or offesnive, nor do I believe they went to far, but they were critical of the claims culture, lack of legality of decisions at FOS and lack of henesty of claiments. For the record I have no clients with Metor plans, but I do think the honesty of the FOS and claiments is as questionable as that of Meteor. No one is comingb out of it looking good at present, neither Meteor, the FOS or claiments as I don't think any of them are being honest and many are just playing politics with what should be a simlpe matter of the rule of law.

Posted by: Nameless