Also known as the Connaught Income Fund, Series 1 — or simply as the Fund – it was an unregulated collected investment scheme (UCIS) launched in March 2008 to provide short-term bridging finance to commercial operators in the UK property market.
CFM was found to have breached Principle 2 of the FCA’s Principles for Business as it failed to conduct adequate due diligence on the Fund prior to taking it on, as well as failing to rectify this failure once it was made aware of the issue.
In addition to inadequate monitoring and failure to address the issues “throughout most of its tenure as operator”, the FCA also said that CFM failed to ensure the replacement operator was fully informed about the issues.
Furthermore, CFM was found to have breached Principle 7 for not communicating with the Fund’s investors in a clear, fair and unmisleading manner.
While CFM’s failing would have ordinarily resulted in a financial penalty, the FCA has waived the fine and instead gave a public censure, as CFM would not have been able to make a payment of up to £66m to investors if a penalty were also imposed.
Mark Steward, executive director of enforcement and market oversight at the FCA, said: “The aim of the payment announced today is to return the amount originally invested, placing investors as closely as possible back into the position they would have been in if they had never invested in the Fund.”
The £66 million figure has taken into account that the Fund’s investors have already received a £22 million distribution made in the liquidation, as well as interest and other payments.
“This also includes any awards made under the Financial Ombudsman Scheme they may have received since they invested,” Steward added.
“Consumers are entitled to expect that authorised firms will carry out their responsibilities under our Principles for Businesses with care and diligence. These responsibilities are paramount and in this instance CFM failed badly,” he continued.
Connaught entered administration in September 2012 after the collapse of its Income Series 1,2 and 3 UCIS, which provided credit lines to stricken bridging lender Tuita, a firm that also went into administration in September 2012. About £118 million was invested in the scheme.
CFM was the operator of the Fund until it resigned on 25 September 2009, on 3 December 2012, the Fund went into liquidation.
Duff & Phelps, one of the biggest joint liquidators of the fund, has been appointed by the FCA to calculate and distribute the money back to investors. The FCA said that Duff & Phelps will contact each investor with an outstanding claim against the Fund with more details.
Managing director at Duff & Phelps, Geoff Bouchier, commented: “That such a substantial payment will be made to the entire investor community, in a legal and regulatory environment of considerable complexity is something which we hope will be regarded as a very significant triumph.”
“The liquidators have provided investors with a comprehensive explanation of steps taken which have assisted the FCA’s investigation and contributed to the outcome. We have also explained the methodology by which payments will be calculated and how the FCA will effect distributions,” Bouchier added.