Spearpoint launches £150m Arch Cru suit – Administrators of the failed Arch Cru funds are lining up a £150m High Court battle against the funds’ former investment manager. Guernsey-based Spearpoint has submitted a claim alleging that Arch Financial Products breached fiduciary duties in running the funds and that it also took £5.4m in “secret profits” – claims that Arch strongly denies.
The suit is being led by Hugh Aldous, chairman of the boards of the 18 sub-funds that the Arch Cru fund range was invested in.
The legal claim includes eight sub-claims based on the various investments that were made by Arch within the funds.
Spearpoint has filed a $162m (£105.6m) sub-claim relating to losses suffered by six of the cells from Arch’s investments in Greek shipping deals, which Spearpoint said were made against the advice of Arch’s own lawyers.
Arch also invested $167m in loans to finance the renovation of seven ships, a deal which Spearpoint claimed amounted to a “breach of duty” and “substantially exceeded the mandate” of the six cells which invested in the deal.
Spearpoint alleges that Arch invested “huge sums” in investments that “it lacked the necessary experience and skill competently to assess, arrange and implement”.
It is also alleged that Arch took £3m in “secret profits” from Lonscale Limited, a shell company which it allegedly designed to direct payments from the cells back to Arch.
If Spearpoint was to win the £150m legal battle it would provide a significant boost for investors in the failed Arch Cru fund range, who have been facing substantial losses since the funds’ suspension in March 2009.
However, Robin Farrell, chief executive of Arch Financial Products, denied the “scattergun” allegations and hit back at the lawsuit, describing it in a statement as “an extraordinarily poorly informed document” that “may mislead investors”.
“Arch and its principals vigorously deny these unfounded allegations in their entirety and will respond fully through the court process,” he said.
“Arch believes this case to have no merit and that the particulars of claim have been designed to attempt to shift blame away from Capita and to further stigmatise AFP.”
Arch claimed the majority of blame for Arch Cru’s failure lay with Capita, the authorised corporate director for the Arch Cru range, and the FSA for its “poorly considered” intervention when the funds were suspended.
“The ramifications of the decisions made by Capita and the FSA in 2009 will be felt by investors for years to come,” Arch said in a statement. “The events leading to the suspension of the funds and subsequent actions by Capita and the FSA ‘hardwired’ the losses by preventing Arch from taking steps that would in the ordinary course be taken by any investment manager to mitigate such losses.”
Capita rejected allegations that “losses were caused by ‘interference’ by Capita in Arch’s management of the funds”.
“Arch was responsible for the investment decisions made by the Guernsey cells, and cannot now try to deflect responsibility for those decisions onto Capita,” it said in a statement.
Arch also alleges a conflict of interest in Mr Aldous’s role as chairman of the Arch Cru cells as well as chairman of Capita Sinclair Henderson, a subsidiary of Capita which provides fund accounting, company secretarial and administration services.
“Arch does not believe investors’ interests are being served well as a result of the significant conflict in having Capita’s director Mr Aldous as chairman of SPL Guernsey ICC,” it said. “AFP does not see how Mr Aldous can possibly discharge his obligations to the SPL Guernsey ICC cells properly, in circumstances where Capita, as a major participant in the £54m compensation package, is in direct conflict with UK fund investors in terms of the adequacy of the compensation package.” The FSA and Mr Aldous declined to comment.
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