FSCS gazumps Ford with 'conflicted' Lifemark rescue offer

The Financial Services Compensation Scheme (FSCS) has put together a deal to provide liquidity for the Lifemark portfolio to rival a $150m loan offer brokered by Keydata founder Stewart Ford.

Details of the FSCS loan have yet to be made public but it is understood it will be for no more than US$30m as this is the limit Lifemark creditor SEB bank will allow secured against the portfolio at the same priority as its own debt.

Interest on the loan will be set at about 14%, IFAonline understands, higher than the 6% Ford claims his deal will cost.

Lawyers for Ford have written to Lifemark's provisional administrator, KPMG, arguing the FSCS' involvement in a deal alongside legal proceedings against IFAs who recommended Keydata products represents a conflict of interest. The FSCS has denied the claim.

The FSCS is attempting to sue advisers who recommended Keydata products to low and medium risk clients who the FSCS has now paid compensation, on the grounds any "reasonably-competent IFA" would have judged Keydata products as high risk.

A legal challenge based on proving Keydata investments are high risk is in direct conflict with the FSCS' involvement in ensuring the portfolio performs well and produces a return for investors, the letter from Ford's lawyer alleged.

The Keydata founder has always maintained his products were accurately described as low-risk in the company's marketing material.

Ford also has a vested interest in ensuring the offer he has brokered is accepted. The £11.1m owed by Lifemark to the firm held by his family trust, Billericay Trading, will not be immediately repaid under the smaller FSCS deal, as it would be under Ford's.

The Keydata founder also claims the FSCS loan facility will not be sufficient to meet the liquidity requirements of the portfolio.

A $30m loan to Lifemark would be used to pay the $4m-$5m a month needed to prevent the premiums on the secondhand life policies that make up the portfolio from defaulting.

Under the deal brokered by Ford with an unnamed US investment bank, the Keydata founder claims investors would receive an upfront payment of £30m-£50m, and the FSCS would be assured of a return of about £244m it has paid out in compensation related to the investment.

Lawyers for Ford claimed the larger deal has been deliberately hampered by the FSCS and KPMG in order to position the FSCS loan offer as the preferred option and deny investors a fair choice.

As Lifemark's biggest representative bondholder following its taking over of the rights of investors it has paid compensation, the FSCS will be in a position to determine which of the competing loan offers is accepted by Lifemark.

In the letter from Ford's lawyers to KPMG it states: "the primary purpose in writing to you today is therefore to alert you and bondholders to the fact that the current process does not provide for bondholders to be presented with a genuine choice, nor does it allow for a fair and objective vote."

"As provisional administrator, you have a duty to Lifemark's creditors and shareholders to ensure that the FSCS does not have an unfair advantage over the other stakeholders."

The FSCS said there is no conflict in interest and it pursues recoveries whenever practical and cost effective to do so.

"We believe claims may exist against independent financial advisers for compensation costs relating to certain Keydata Investment Services Ltd products.

"As a result, we have issued legal proceedings to protect against the limitation period while we analyse the potential claims in detail. We cannot comment further at this stage."