Arch to be sued for multi-million pound cru fund losses

The chairman overseeing the winding up of the Arch cru fund range has begun legal proceedings against Arch Financial to reclaim multi-million pound losses to the cells he alleges were caused by the manager's "negligence and wrong doing".

Hugh Aldous, chairman of the SPL Private Finance  fund, one of the renamed Arch cru cells, said the particulars of claim against Arch are now "well advanced".

"The quantum of that claim is going to be a considerable number of millions and arises from losses to the cells caused by the negligence and wrong doing of those servicing them", Aldous said in a statement in the SPL Private Finance accounts for the year ended 31 March.

Investigations by the board have discovered what it considers to be "negligence, lack of diligence, the use of unsuitable counterparties and the making of improper gains by the former managers," he said.

He said the NAV of several of the cells was overstated from 2007 onwards and the share prices of cells "were influenced so that they tracked the overstated NAVs unreasonably".

Aldous said the board would be pressing its legal action and reporting its findings to the Guernsey Financial Services Commission and, through them, to the Financial Services Authority.

The chairman said the board is also in pursuit of the previous owner of ships and other parties the fund invested in whom it considers caused loss to the cells and, in some cases, misappropriated funds.

"A consequent cascade of claims will follow to others who failed in their duty of care to the cells," he said.

A spokesperson for Arch said the fund has not brought any claim against Arch Financial Products to date.

"In the event however that proceedings are commenced, we will defend any such claim vigorously and based on the advice we have received to date, believe that we will be successful."

"We believe there are questions to be answered by the ICC and its directors, relating to their handling of the investments. We note in passing that Mr. Aldous is a Capita official as well as Chairman of the ICC Board, and his comments should be viewed accordingly."

The fund reported a loss for the year ended 31 March 2011 of £3.7m (2010: loss of £6.7m), representing a loss per share of 12.51p (2010: loss of 20.80p per share).

The NAV attributable to Participating Redeemable Preference Shares at 31 March 2011 was £12.4m (2010: £17.3m), 42.11p per share (2010: 53.87p per share).

In the year ended 31 March 2011, the Fund had an unrealised loss of £3.0m (2010: gain of £6.8m) and a realised gain of £0.1m (2010: loss of £14.1m) on its investments.

Aldous said the board will be in a position to accelerate the pace of capital returns in the second half of 2011.

The board also intends to de-list the four remaining Arch cru funds still listed on the Channel Island Stock Exchange in due course.

Shareholders invested a total of about £422m in the troubled Arch cru funds before they were suspended in March 2009.