26th May 2015
The City watchdog is seeking to fine three men £80m for the mis-selling of “death bonds” linked to life insurance policies.
The Financial Conduct Authority says the way the bonds were sold by Keydata was misleading, but the men are appealing against the fines at a tribunal.
If the appeal is unsuccessful, Stewart Ford, the former chief executive of Keydata, stands to receive the largest ever fine of any individual by the FCA at £75m.
Mark Owen, the former sales director and Peter Johnson, the former compliance officer are in line for fines of £4 and £200,000 respectively if they lose their appeal.
The FCA also wants to ban all three from performing any role in regulated financial services.
Around 37,000 investors were affected. The watchdog says that customers who invested in the products between 2005 and 2009 were told the products were eligible for inclusion in an Isa when they were not.
Keydata Investment Services (Keydata) designed and sold investment products to retail investors via independent financial advisers (IFAs).
Investors lost at least £330m and are in the process of being refunded by the Financial Services Compensation Scheme (FSCS).
The products were underpinned by Keydata’s investment in bonds issued by Luxembourg special purpose vehicles called SLS Capital S.A (SLS) and Lifemark S.A (Lifemark). In turn SLS and Lifemark invested in portfolios of life settlement policies. These are second-hand life insurance policies, which were set to pay out when the original owner died.
The policies were sold by US citizens, who were seeking to raise money by cashing them in.
In the FCA’s opinion Mr Ford, Mr Owen and Mr Johnson failed to act with integrity and also misled the then Financial Services Authority (FSA) on a number of occasions over the performance of the investment products.
The watchdog says that the three individuals allowed Keydata to continue to sell the Lifemark-backed products to retail investors even after they became aware that they were unlikely to comply with ISA regulations.
It says that while they continued to sell the products, they were also aware that their promotions were unclear, incorrect and misleading, that there was inadequate due diligence on the products and that there were problems with the performance of the portfolio underpinning the products.
In addition the regulator believes that Mr Ford and trusts set up for the benefit of his family received some £72.4 million in fees and commissions on sales of the Lifemark products and that Mr Owen received commissions on sales of the Lifemark products in the amount of £2.5 million.
The FCA argues that Owen’s commissions were not properly disclosed, nor was Ford’s conflict arising from the payment of these fees and commissions adequately managed.
It says that Ford deliberately concealed the problems with the portfolio underlying some of the products from investors, IFAs and the then FSA
The watchdog says Owen recklessly relied on assurances from Ford that he would resolve these problems and agreed to Keydata funding the income payments to investors (which should have been funded by payments from SLS to Keydata) from Keydata’s own resources although he was aware this would conceal the portfolio’s solvency problems.
It argues that Johnson failed to ensure the FCA was aware of problems with the products and their promotions, identified by Keydata’s professional advisers.