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http://www.telegraph.co.uk/finance/personalfinance/investing/11644147/Investors-in-stricken-deathbond-fund-consider-further-legal-action.html
Investors in stricken 'death bond' fund consider further legal action
Hundreds of investors in EEA Life Settlements, a Channel Islands-based fund that used
savers' cash to buy life insurance policies, are considering mounting a second legal
claim
Hundreds of investors in a £600m,
Guernsey-based fund that invested in "death
bonds" are considering legal action against
the fund provider, its directors and other
parties.
If it goes ahead, this action – being mulled
by the EEA Investors' Group, which
represents 300 investors and financial
advisers – would be the second group
litigation involving crisis-hit EEA Life
Settlements.
A separate EEA investor group, representing almost 560 investors, has already launched an
action against the City watchdog, the Financial Conduct Authority.
The fund took in an estimated £600m from thousands of savers between 2005 and 2011. The
money was used to buy second-hand life insurance policies from American pensioners,
sometimes called "death bonds". The pensioner is paid a lump sum and in return gives up the
right to the insurance payout when they die. In such cases the policy purchaser (here it would
be the EEA fund) is responsible for paying ongoing premiums.
These investments were widely touted as offering secure, "low risk" returns to private savers.
EEA investors were led to expect returns of 8pc per year. But a combination of unexpected
policyholder longevity and an inability to sell the policies when investors wanted to cash in
created major difficulties.
• Watchdog urges investors to complain
The sector became mired in scandal following the collapse of Keydata, a high-profile firm
which sold death-bond backed investments through building society branches. With Keydata,
some of the problems stemmed from a misappropriation of assets. There is no suggestion of
impropriety in the case of EEA.
But while Keydata savers were largely compensated by the Financial Services Compensation
Scheme, investors in EEA may not be covered because the business falls outside British
regulation. The EEA portfolio has been more or less frozen since 2011, with only very
limited withdrawals permitted.
David Trinkwon, speaking for members of the EEA Investors' Group, said he reckoned the
value of the assets remaining in the portfolio represented between 50p and 80p per £1
©2015 Telegraph Media Group Ltd and EEA Investors’ Group
originally invested. He argued that EEA could best maximise the value of the remaining
policies by selling some and letting others run to maturity.
But he claimed that EEA was guilty of "both mismanaging the portfolio and misleading
investors and their advisers". Lawyers are looking into whether there could be grounds for
making such a case against EEA and claiming redress. "But we accept legal action is a last
resort, as it is costly and the outcomes often uncertain," Mr Trinkwon said.
The other investor action group, led by Peter Lihou, is taking a very different tack. Rather
than pursuing EEA it is aiming squarely at the Financial Conduct Authority, in its former
incarnation as the Financial Services Authority.
Peter Lihou, a retired software consultant who invested £37,000 of his pension in the EEA
portfolio in 2008, told Telegraph Money his group's argument was based on the fact that, in a
speech in 2011, a senior FCA (then FSA) official sparked a run on the EEA fund by referring
publicly to such life insurance-based investments as "toxic", and comparing them to ponzi
schemes. The flood of withdrawals from the fund triggered the crisis, Mr Lihou maintained.
Because the FCA as a government agency cannot be sued in British courts, an action has
been lodged in Europe. Mr Lihou said: "In declaring a whole asset class toxic, the FCA
caused huge harm."
A spokesman for EEA told Telegraph Money: "Both EEA Fund Management Limited (the
Fund’s marketing agent) and EEA Fund Management strongly refute the suggestion that they
misrepresented the fund to investors, as claimed by the self-named “EEA Investors Group”.
No such representations were given.
"The fund’s board and the manager have acted at all times to seek to achieve medium to long
term capital growth, within the terms of the Fund’s investment objectives, and have actively
overseen and managed the portfolio’s composition with that overriding objective in mind.
"Following suspension of redemptions, the Fund was restructured so as to allow shareholders
to elect either to retain ongoing exposure to the asset class via the reinvestment of maturity
proceeds, or to receive payments as policies mature or are sold.
No guarantee was given to shareholders as to the amount of their investment that they would
receive back. It was explained that the valuation of shares can go down as well as up and
therefore that shareholders might well receive back less than the amount they invested."
The FCA maintains that investors' first case should be against the financial advisers and other
institutions which sold them the EEA investments in the first place. In September 2014 it
issued a written statement saying: "We believe that some who invested in a fund called EEA
Life Settlements are likely to have been mis-sold the product. As a result, you may wish to
make a complaint to the firm which sold you the investment or make a claim against it."
[email protected]
©2015 Telegraph Media Group Ltd and EEA Investors’ Group
EMAIL TO EEA RE THE EEA TELEGRAPH STATEMENT
From: David Trinkwon [mailto:[email protected]]
Sent: 04 June 2015 01:23
To: Mark Colton
Cc: EEA Secretary; '[email protected]'; 'Richard Dyson'
Subject: Telegraph Article on EEA
Dear Mr Colton
Further to my earlier email concerning the FT Article, we have now seen similar and additional
statements that an EEA spokesman made to the Telegraph for their article published online on 2nd
June. I am submitting our additional comments (below) for your attention, but also want to repeat
what we have said many times before (both verbally and in writing) :
a) We would prefer to work with you (not against you) in order to reconcile the many
differences between our respective views and agree the most beneficial way forward for all
the remaining investors, of which we represent a material number.
b) We will respect all necessary undertakings of confidentiality, and understand the legal and
market sensitivities that exist around many of these topics.
c) We are very disappointed that the Board has not followed through on the assurances given
to us at last November’s AGM, but it’s not too late to remedy the situation.
You often purport to be acting in the best interests of investors, and if you are receiving different
inputs from other investors then we would be more than happy to meet with them (and you) to try
and reconcile our differing views and/or support periodic investor information meetings as we
proposed during the AGM.
Kind Regards
David Trinkwon
==============================================================================
A spokesman for EEA told Telegraph Money:
"Both EEA Fund Management Limited (the Fund’s marketing agent) and EEA Fund
Management strongly refute the suggestion that they misrepresented the fund to investors, as
claimed by the self-named “EEA Investors Group”. No such representations were given.
We obviously beg to differ, based on input received from investors and financial advisors in the
UK and elsewhere, as well as the documents, media articles and emails published, endorsed or
issued by the EEA Fund Board, the Guernsey Fund Manager and/or the London Sales and
Marketing Agent. We are compiling a Working Paper on these issues which will cite the
instances and supporting material.
©2015 Telegraph Media Group Ltd and EEA Investors’ Group
"The fund’s board and the manager have acted at all times to seek to achieve medium to long
term capital growth, within the terms of the Fund’s investment objectives, and have actively
overseen and managed the portfolio’s composition with that overriding objective in mind.
A similar statement was included in the earlier FT article and we have already commented on
these aspects.
"Following suspension of redemptions, the Fund was restructured so as to allow shareholders to
elect either to retain ongoing exposure to the asset class via the reinvestment of maturity
proceeds, or to receive payments as policies mature or are sold.
We agree, but we objected at the time (to the Board and to the Guernsey and UK Regulators)
that the restructuring process was unnecessarily delayed, complex, subjected to inappropriate
threats of “huge capital losses”, unfair to some groups of investors and did not include a sought
after option to manage a controlled run-off of the Fund for the maximum financial benefit of all
investors. At that time we were also unaware of the many flaws behind the historic management
and representation of the Fund. It took us a year to carry out and corroborate a thorough
expert analysis and to identify the ways in which the Fund had been mis-managed and misrepresented since inception. This now means that we have a clear understanding of the
consequences and implications of the restructuring for the remaining investors and their
diminishing prospects for return of their capital in a reasonable timeframe.
No guarantee was given to shareholders as to the amount of their investment that they would
receive back. It was explained that the valuation of shares can go down as well as up and
therefore that shareholders might well receive back less than the amount they invested."
That’s also correct. The issue is WHY the valuations have gone down (or were illusory in the
first place), why investors will now receive much less cash than was predicted at the outset, and
also at the time of the restructuring, and why it is taking much, much longer than EEA
predicted at the time of the restructure. We have satisfied ourselves that the causes were (and
are) mostly not due to market factors outside the control of the Directors and Managers
concerned, but were the result of mis-management and mis-representation by the Directors, the
Fund Manager and their associated Agents. We want to ensure that the remaining assets are
managed in the most transparent and effective way that will return the maximum possible cash
to all the investors in a reasonable time-frame whether that cash is then taken by the investor or
re-invested in the New Irish Fund. We are also now aware that the consequences for Continuing
shareholders have some particular implications and unfairness for the investors concerned and
wish to see these anomalies properly addressed.
©2015 Telegraph Media Group Ltd and EEA Investors’ Group