The collapse of the unregulated investment fund and demise of Tiuta, a bridging lender, was discussed in parliament for the first time this week.
Led by Alun Cairns, MP for the Vale of Glamorgan, MPs gathered to raise questions over how it happened and how investors could claw back their money.
The All Party Parliamentary Group want police action over the misappropriation of funds and have demanded greater transparency from the Financial Conduct Authority over the responsibility for the failings.
Bridging lender Tiuta plc was placed into administration in September 2012 following a shortfall of approximately £20m found in its accounts in January 2011.
It was discovered that the company had been using investors’ money to prop up its daily operating needs and for the payment of directors’ salaries and bonuses.
Bridging loans arranged by Tiuta were funded through an Unregulated Collective Investment Scheme (UCIS) called the Connaught Income fund.
It promised investors a quarterly return of around 8.5% on their capital while charging borrowers in excess of 17%.
Marketing material used to promote the fund described the bridging loans as low risk with modest loan-to-value ratios typically at 56% for borrowers with a healthy credit profile.
And the investors were given a guarantee from Tiuta to meet any shortfalls which may arise following the redemption of the bridging loans.
But it is believed that funds paid back to Tiuta by borrowers were not paid back into the UCIS fund and money drawn down for loans which had been approved did not always proceed.
Cairns said it has been suggested that Connaught provided a monthly statement to Tiuta’s management accountant switching the true loan book and that of the approved one.
In April 2010 George Patellis was appointed as chief executive of Tiuta and become concerned about the quality of financial reporting within the company.
He appointed BDO to investigate Tiuta’s accounts and his intial concerns were confirmed. He alerted the FSA to the firm’s £20m shortfall and resigned the following month.
The FSA opened a case on Tiuta but based on information supplied by BDO, which came directly from Tiuta’s directors, the FSA was persuaded to allow Tiuta to continue trading.
MPs want Andrea Leadsom, the economic secretary to the Treasury, to carry out an investigation to find out what knowledge Capita, the company responsible for administering the fund and taking care of investors’ money, had of the wrongdoing at Tiuta.
By establishing when Capita became aware of the mis-use of funds investors will be able to begin legal proceedings to claim back their money.
Despite the unregulated nature of the fund, regulated advice was given which places a responsibility on the then Financial Services Authority to step in and protect the rights of the Connaught investors.
Leadsom said the findings of the insolvency review are to be published “in the near future”.