FSCS lawyers reveal hitlist of Keydata advisers facing legal action

Will we get a refund

Once they have re-couped funds will we get a refund of the additional FSCS levy we wrongly had to pay?

Posted by: everyifa

Another flying porker

"It is part of the scheme's mandate to recover those cost from third parties where possible, and reimburse levypayers". Fat chance! There won't be anything left to reimburse us with when the solicitors have finished. I will however look forward to seeing the solicitors involved in setting up the schemes in the first place fined under some rule or other - applied retrospectively of course...

Posted by: Tony Marsden

We know who you are

Surely a breach of Data Protection? Did anyone give this law firm Herbert Smith or the FSCS permission for their details to be made public like this. I can understand them believing no adviser has any rights but what about the investors?

Posted by: lol

FSCS levy refund

@everyifa - As I understand it, any refund will be applied to the fund management sub-class first, and then the intermediary sub-class (if there is any cash left to refund). This is a positive move, as those who profited from the sale of Keydata should be the ones to compensate their own clients, rather than the industry via the FSCS levy. I'm not holding my breath for a refund of the £10,000 we paid out earlier this year, although it is nice to live in hope that the right thing is at last being done. On a related issue, I wonder how many of these firms have the capital adequacy to compensate their investors, should the legal action prove successful and assuming their PI insurers will not pay?

Posted by: Martin Bamford

No blame no claim

The PI insurer will NOT pay where there is no client complaint. Re Martin Bamford it is not simply a case of those who profited from keydata who should pay. Their files may yet prove compliant. Be careful what you wish for.

Posted by: lol

Execution Only??

So, when is exectution only still an advised sale?? When Herbert Smith (FSCS) want it to be... We had ONE case with Keydata, arranged for a very modest fee only, to cover the time cost and rebated the initial commission. Client was 'an industry professional' so knew what he was doing. Now we find that we are on the 'Lord High Executioners' list. Is there no end to this madness??

Posted by: Unhappy on South Coast

Biggest Data Protection breach..

I've had my post and sold 1 product and will argue it was appropriate with whoever asks... but what concerns me is this must be one of the biggest data protection breaches since the Govt lost those disks? I've got on my desk a list of 5,000 investors and how much each person invested in Keydata and who with. My client's data is there without permission and if this list gets on the web, it is an invitation to criminals etc - it's scary. It's outrageous - not to mention the cost of sending circa 1,000 pages to each of the 537 IFA's listed...

Posted by: Not impressed

Superior Knowledge

Interesting to see that Alan Steel is in the list. Given that their web site promises, to quote,:- "People see us as: Being ahead of the game, spotting new opportunities early and capturing trends before they are obvious. We are recognised as having superior technical knowledge to the financial benefit our clients and being successful investors for our clients. We have repeatedly warned of impending industry problems before the authorities or media." How come their "superior knowledge" was not sufficient to avoid the KD fiasco and did not spot the problems before the authorities?

Posted by: Andyman

totally irresponsible

We received the pack this morning which was strange as we had never sold a Keydata product. On looking at the list of clients we found the client to whom we were supposed to have sold the product was a client of an adviser who joined us for a short time last year.The firm for whom he worked when he sold the product is not on the list. I have off course emailed the solicitors to inform them and I await their response especially with regard to damages for the incorrect publication of our name in the list. If anybody has any advice on what we can do in regard to this I would be very interested.

Posted by: Chris Paul

Data protection

Having seen the 'letter' I am flabbergasted that there has been no credence given to the Data Protection Act. Since when are lawyers above the law? How is it that the letter S2.2 pontificates thus "please note that the Schedules to the Claim Form and Particulars of Claim, contain potentially sensitive personal information in relation to individual investors and should not be disclosed to any person or used etc..." Yet all the world now knows or will soon know who these investors are and who advised them. Clearly this web site has the list. Is there no justice or ability to defend oneself anymore in this land?

Posted by: Andyman

Incompetent???

Herbert Smith claims negligence and breach of the Conduct of Business Rules applicable to IFA's in not taking reasonable skill and care in advising Keydata products. This is very nteresting, because COBS Rule 2.46R(2) stated clearly at the time these contracts were taken out: 'A firm will be taken to be in compliance with any rule in this sourcebook that requires it to obtain information to the extent it can show it was reasonable for it to rely on information provided to it in writing by another person'. Given that the literature provided by Keydata claimed support from both KPMG and HSBC which both later denied, that gives IFA's a weighty defence. Also, FSCS has already used the argument that the fraud was too remote and hence Keydata was not itself liable. Since it was even more remote from the IFa it seems to follow that FSCS has already acknowledged that the IFA cannot be liable. Let's face it, this product was listed in Luxembourg, backed by CSSF Regulated SPV, issued by an FSA Regulated firm, who provided IFA's with an explanation in writing of the investment and associated risks via their Prospectus,and which was backed by the FSCS!! What a shameful exercise that is being conducted now considering where IFA's fit in the food chain. Incompetent??? We shall see!

Posted by: Sage

An odd state of affairs

I have read through the posts and have to agree with most. Yes, there are some who will be ‘holier than thou’ and no doubt had prescience after consulting their crystal ball – or was it blind luck? After all there are among the perpetrators some pretty illustrious firms. Anyway be that as it may. I am no lawyer but I wonder how solid the ground is and I wonder what recourse these people would have if the vast majority of firms would just not respond or tell them to ‘go forth and multiply’? After all it isn’t a matter of customer complaints. And it could well be that however unfortunate some (indeed many) could have been perfectly compliantly advised. Indeed how would anyone know at this stage unless and until every file had been examined? I am somewhat at a loss to understand how advisers who have received no complaints and have contributed to the FSCS scheme can now be taken to account. It rather smacks of either desperation or Regulation by hindsight on the hoof. Of course one has sympathy for those who weren’t involved, but had to contribute to the FSCS, but surely that is the whole purpose of the scheme. Are we to take it that in future advisers are going to be held to account when a provider not only goes belly up, but where there has been misrepresentation and malfeasance and the Regulator was inactive and blind all the while. (There was no inspection of Key Data). It all seems very odd to me. As someone else so pithily put it – there will be precious little left after the lawyers have had their bite.

Posted by: Felix Godwyn

This is a mess

Please get in touch if you have found errors in the pack, I would like to see the paperwork ASAP.

Posted by: Evan Owen

I am whiter than white??!

My understanding of the matter is that FSCS has been prompted to take this action by the angry IFA firms that had to pay the extra levy and yet did not sell Keydata products; these firms are now hoping for a refund (after HB has taken their huge bite of the cake!)and sitting on their laurels thinking that they are more competent than people involved. Yet, what many don't seem to comprehend (or refuse to admit) is that the FSCS is an INSURANCE scheme. Think of it this way: if there are more crashes than usual or personal injury scams EVERYONE'S car insurance premiums go up! If you drive a Ferrari, naturally you pay more than a Mini driver. Whatever you drive, you can't ask your insurance company to refund your additional premiums because it wasn't you that had the crash or claimed personal injury and beware, can you guarantee your immunity from crashing at some future point in time!?

Posted by: Mars

Politics

I have seen the claim. In it Herbert Smith argue that Keydata representations that the product was lower risk than corporate bond funds or equities was misleading, and that this should have been apparent to IFAs. I also have a client who claimed from the FSCS on the basis that they relied on that specific representation. The FSCS rejected that claim, stating; "Keydata made certain statements in its marketing materials about the level of risk associated with caegory 1 investment relative to the risk of investing in equities or corporate bonds. To date, we have not seen any evidence which establishes that these statements were false." The letter also confirmed that Keydata could not reasonably have foreseen the cause of the loss (theft), and so were not responsible for it in law. This being so, then how could IFAs? This is now about regulatory politics in my view. The FSA want to save face. After all, they have messed Keydata up from start to finish and have other reputational problems with Arch Cru and RBS to name but two. The IMA want their levy back (they are first in line and IFA's will be lucky to see a penny in refunds). The IMA have more voice with the regulators and I think they are the driving force behind the current action.

Posted by: Annoyed

THe FSA Knew and Did Not Act in consumers interests until it was too late

In 2007 the FSA conducted a thematic review of the firms products and how the risks to capita were viewed. From the point of view of common sense, the Life Settlement products have a guaranteed payout, everyone dies ! So why is this a high risk product one has to ask? The issues with KIS, the structure of the ISA products and questions about liquidity were well known by the FSA from 2007 and they did not publish their thematic review to the wider IFA community nor make it public. By allowing the firm to continue trading, using its existing products is quite clearly recklessly negligent. No IFA should surrender to these threats, which are in the main an unjust imposition on all of us, regardless of whether a firm sold the products or not. The fact that someone stole £100million is not the fault of IFAs and that the FSA DECIDED to place the firm into administration at great expense to the investors instead of allowing the management to resolve the tax issue re - ISA construction from their own retained funds, puts the blame on the FSA, firmly and squarely. IFAs did not cause the problem, the FSA failed in its duty to protect consumers interests and maintain confidence in the financial system There is a question on the legality of the FSCS's actions in that if a client has not complained, how can the advice be construed as unsuitable.

Posted by: Ned Naylor

Disingenuous

Ah, so Herbert Smith are now experts in the field of investment risk analysis? As far as the Keydata scheme goes,they know full well that IFA's are no more experts on mortality and life settlements than they are on equities or bonds. That's why we are authorised for advising on (mainly) collective schemes. The Keydata scheme had no link with stockmarkets, or interest rates, or indexes, or politics, or growth. The scheme was based upon anticipated maturities of life insurance policies upon death. This in turn depended mainly upon the 'actuarial modelling' used and the volume of policies in the scheme, which was launched after professional actuarial research was carried out. And It was not actuarial research which failed the scheme. Hence, IFA's were entitled to rely upon this actuarial (expert) research under COB Rules, and quite reasonably regarded the scheme as lower risk than equities or most corporate bond funds. The main risk was seen to be default of Insurers, which again did not fail the scheme. Fraud was never mentioned as a risk and the FSCS has cleared Keydata on that issue, clearly IFA's are even more remote. Why should IFA's have known that the actuarial research was misleading, any more than they trust the material they read produced by 'experts' managing other collective schemes on a daily basis? (and which form the basis of many client recommendations). The motives previously hinted at for the FSCS claim by Herbert Smith may yet be shown to be machiavellian in nature, if not downright disingenuous. It remains to be seen whether affected IFA's get the best legal backing to defeat this deceitful, cowardly and elaborately cunning ploy to cast a slur upon their honesty and general level of competence.

Posted by: Sage

FSA "approval"

Ned Of course, we should also not forget that in April 09 the FSA reviewed an IFA's advice to cautious unsophisticated investors to put all their TFC into Keydata, concluding that the advice was suitable for the clients objectives and attitude to risk. I understand that the FSA supervisor who made that assessment was appointed to represent the FSA on the Keydata creditors committee just a few short months later. Keydata went down in June 2009. If the FSA had general concerns about IFA Keydata advice then why did they not begin investigating firms well before May 11, when their current work started? It is telling I think that they only started looking into the sales AFTER the FSCS announced the record levy and AFTER the IMA got very upset. Perhaps they didn't really want to begin an investigation given that it would highlight there own very many deficiencies.

Posted by: Annoyed

Negligence?

Having looked at the cases on our short list, the case against us for one is on the basis of 'affordability'. At the time the client had a portfolio of shares in excess of £200k and the investment of £5,000 was a result of a direct offer, the investor only later becoming a client 2 years later to invest further capital. Similar circumstances apply to others. Surely it remains that publication of these lists, both of firms and investors is in breach of the Data P A? I have now been able to find the address and telephone numbers, names of spouses, children etc of a number of listed investors, as well as knowing how much they invested. Did they give permission for their names to be passed on to 500+ businesses?

Posted by: Andyman

Sage

Gosh reading the comments by Sage - is he a lawyer? If this is accurate - Sage by title and sage in fact. As he says I too believe there is some sort of hidden agenda. There is too much that doesn’t seem to add up. Martin Bamford (as ever) is accurate. As I have understood it this action was encouraged by the fund management sub class. If indeed there is any recovery Herbert Smith stands first in line for a pay-out and presumably the fund managers take the rest. (At what cost one wonders?) One also wonders why the fund managers didn't squeal when the two stockbrokers landed up on the liability last year. (Can’t remember the names offhand - but know we all had to stump up). When it comes to a financial services hierarchy it seems that the richest (fund managers) are seeking redress from the least well off. (The advisers). I guess that’s no defence, but I suppose it’s irritating.

Posted by: Harry Katz

Sage

Gosh reading the comments by Sage - is he a lawyer? If this is accurate - Sage by title and sage in fact. As he says I too believe there is some sort of hidden agenda. There is too much that doesn’t seem to add up. Martin Bamford (as ever) is accurate. As I have understood it this action was encouraged by the fund management sub class. If indeed there is any recovery Herbert Smith stands first in line for a pay-out and presumably the fund managers take the rest. (At what cost one wonders?) One also wonders why the fund managers didn't squeal when the two stockbrokers landed up on the liability last year. (Can’t remember the names offhand - but know we all had to stump up). When it comes to a financial services hierarchy it seems that the richest (fund managers) are seeking redress from the least well off. (The advisers). I guess that’s no defence, but I suppose it’s irritating.

Posted by: Harry Katz