Financial Conduct Authority wants to impose huge penalty on Stewart Ford, founder of collapsed investment firm Keydata. Ford is appealing.
The Financial Conduct Authority has launched a legal battle to fine the founder of Keydata, an investment firm the City watchdog’s predecessor shut down and declared insolvent in 2009.
Around 30,000 people lost money in Keydata’s investments and after a lengthy legal stand-off the FCA says it wants to fine Stewart Ford, the firm’s former boss, £75 million. It has also decided to impose a £4 million penalty on Mark Owen, Keydata’s former sales director, and a £200,000 fine on its former compliance officer Peter Johnson.
In decision notices published today, the FCA said it intended to bar the three men from any future role in financial services.
However, the trio have referred the case to the Upper Tribunal where they will each represent their case alongside the FCA. The tribunal will then uphold, vary or cancel the FCA’s decision. The three men had already unsuccessfully applied to the courts to prevent the FCA’s decision notices being published.
Ford is also launching his own £700 million counter-claim against the FCA and accountants PricewaterhouseCoopers (PwC), which found Keydata insolvent in 2009. He claims the then Financial Services Authority (FSA) and PwC conspired against Keydata in a ‘classic regulatory stitch up’ and the FSA ‘was hell bent on destroying a successful and well run business in order to justify its continued existence’.
In 2011 Ford won a judicial review against the FSA which ruled the regulator had been wrong to use emails from him that it had collected during its investigations.
The case
The FCA’s concerns lie with the fact that Keydata sold its products as eligible for ISAs (individual savings accounts) when they were not. The firm sold policies through independent financial advisers that were underpinned by investments in bonds issued by SLS Capital and Lifemark. These were in turn invested in second hand insurance – or ‘life settlement’ policies – bought from individuals in America.
A total of 5,000 investors saw their savings disappear when £103 million of their money went missing from SLS Capital, which was run by fugitive financier David Elias who is believed to have died. The 25,000 Keydata investors whose money went into Lifemark-backed bonds saw their investment frozen when the company went into administration.
The FCA wants to claw back the £72.4 million in fees and commission received by Ford from the sales of Lifemark products and the £2.5 million received by Owen as part of their fines.
‘In the FCA’s opinion Ford, Owen and Johnson failed to act with integrity and also misled the then (City regulator) the Financial Services Authority (FSA) on a number of occasions in relation to the performance of the investment products,’ the FCA said in its notice.
It said the individuals were ‘aware that it was highly likely the products did not comply with the ISA regulations, that the financial promotions were unclear, incorrect and misleading, that the due diligence on the products was inadequate and that there were problems with the performance of the portfolio ultimately underlying the products’.
In terms of the commissions received, the regulator said Owen’s were ‘not properly disclosed’ and neither was ‘Ford’s conflict arising from the payment of these fees and commission adequately managed’.
It said Ford ‘deliberately concealed the problems with the portfolios underlying these products from investors, IFAs, and the then FSA’ and the three men ‘deliberately misled’ the regulator when asked about the performance of the products.
The regulator said:
- ‘It is the FCA’s view that Owen recklessly relied on assurances from Ford that he would resolve the problems with the portfolio’s performance and solvency 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.’
Ford fights back
Ford has said he will be bring his own claim for £700 million against the regulator and PwC. He welcomed the court case saying it would be ‘the first time an independent body has considered the facts of this matter’.
‘Up to now, the process has been entirely ‘in house’ and whatever evidence was put forward in my defence, there was only every going to be one outcome as far as the FSA was concerned. This was a classic regulator stich-up,’ he said.
He added the past six years had been a ‘nightmare for myself, my family and the former employees of Keydata’.
‘I am now joining PwC as defendants to my £700 million claim against the FCA for abuse of power and misfeasance in public office. The FSA set out deliberately to destroy Keydata and did so without any proper reason,’ said Ford.
‘In order to close the company down without notice they listed the assistance of PwC to report that the company was insolvent, which they did without even bothering to speak to Keydata’s management…The FSA and PwC…collaborated and conspired to carry out a regulatory hatchet job on Keydata and me. It is high time that they were held accountable for their actions. That time is fast approaching.’
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