Impending FCA sanction raises the possibility of compensation for thousands.
The City watchdog has prepared a fine of up to £306m against Neil Woodford, the administrator of collapsed income funds.
This raises the possibility of substantial compensation for thousands of investors who supported the once-star stock picker’s vehicle.
Link Fund Solutions has been sanctioned by the Financial Conduct Authority (FCA), for its role in the collapse and subsequent recovery of the Woodford Equity Income Fund.
Link was the Woodford Equity Income Fund’s so-called authorized corporate director. This meant that it had a duty of monitoring the fund and holding the manager accountable.
After Mr Woodford, a stock picker who had large positions in difficult-to-trade shares was unable to sell assets quickly enough in order to meet increasing withdrawal requests from investors, his fund was temporarily suspended in June 2019.
The fund was closed in October 2019 and more than 300,000 savers nursing heavy losses.
After an almost three-year investigation, the FCA stated that Link was likely to be subject to a “financial sanction and/or consumer remedy” up to £306m.
Although the regulator is still investigating Link, the regulator made the announcement Monday due to the fact that Link is being purchased by Dye & Durham in Toronto as part of a $1.7bn (£1.5bn), deal to acquire Link’s parent company.
The FCA stated that it would not approve the deal unless Link’s involvement in the Woodford fiasco is covered by Canadian insurance.
The regulator stated that the FCA had investigated the circumstances leading to the suspension of WEIF and was likely to request LFS to pay a financial fine and/or consumer remedy.
“The FCA believes that the maximum redress payment LFS may be required to make it up to £306m.
“This redress proposal represents the FCA’s current views on Link’s failures in managing (Woodford fund) liquidity. It doesn’t reflect any amount that may be owed to anyone else, even members of the fund, due to potential wrongdoing by others.
It stated that the FCA has yet to make a final decision on the penalty, and Link can challenge any FCA decision via the FCA decisions committee or Upper Tribunal.
The latest development in the collapsed veteran stock picker’s fund is the proposed penalty. It was almost three years ago.
Two groups of investors joined together in June to sue Mr Woodford for multimillion-pound damages.
Harcus Parker and Leigh Day, both London law firms, filed a group case against Link in the High Court seeking damages in excess of tens to millions of pounds for Link’s handling of the saga.
They claim that Link received millions of pounds in fees, but did not adequately supervise £3.7bn.
Investors suffered a series of catastrophic losses due to Link’s failure to manage liquidity, value assets appropriately, and spread risk prudently.
Link stated that it would vigorously defend the charges. It also said that it had acted in accordance with applicable laws as well as the best interests of all investors.
Last year, Mr Woodford, stated that he couldn’t be responsible for the actions he didn’t take. I did not make the decision that the fund should be suspended. I also didn’t decide to liquidate it. These decisions were extremely damaging to investors and were not mine, as history will show. These were Link’s decisions.
“The FCA continues to investigate matters related to the operation and management of the fund,” said the regulator. The FCA has determined that redress will be based on misconduct and not losses due to fluctuations in the price or market value of investments.
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