£75m regulator fine for Scots investment chief

The former chief executive of a failed investment company has been fined £75m, the largest such penalty ever imposed on an individual, by the Fimancial Conduct Authority.

Stewart Ford, from Edinburgh, was in charge of Keydata Investment Services, which had offices in Glasgow, London and Reading, when it was put into administration in 2009 leaving investors facing losses totalling around £450m on so-called "death bonds". 

Fines of £4m and £200,000 respectively were also imposed on Mark Owen, the former sales director, and Peter Johnson, the former compliance officer. The larger fines reflect the benefit alleged to have been derived by each individual from the company's activities. All three have been prohibited from performing any role in regulated financial services.

Purchasers of the bonds were investing in second-hand life insurance policies originally taken out by US citizens. Investors were incorrectly told that the bonds were eligible for ISA status. The FCA ruled that the bonds were not suitable for ordinary private investors, because of the risk involved.

In its decision notices the FCA sets out its view that the three executives permitted Keydata to continue to sell the products concerned to retail investors when they 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.

It concludes that all three failed to act with integrity, and also misled the then Financial Services Authority on a number of occasions in relation to the performance of the investment products. Mr Ford, it states, deliberately concealed the problems with the underlying portfolio underlying these products from investors; Mr Owen recklessly relied on assurances from Mr Ford that he would resolve the problems with performance and solvency and agreed to income payments to investors being funded from Keydata’s own resources, thus concealing the portfolio’s solvency problems; and Mr Johnson failed to ensure the FCA was aware of problems identified by Keydata’s professional advisers.

Further, the FCA considers that and that Mr Ford and Mr Owen failed to disclose to the FCA the significant personal benefits and commissions they received from the sale of the products, The FCA believes that Mr Ford, and trusts set up for the benefit of his family, received some £72.4m in fees and commissions, and that Mr Owen received commissions of £2.5m. In the FCA’s opinion, Mr Owen’s commissions were not properly disclosed, nor was Mr Ford’s conflict arising from the payment of these fees and commissions adequately managed.

All three individuals have appealed their decision notices to the Upper Tribunal, which may uphold, vary or cancel the FCA's decisions. 

So far around 20,000 of the 37,000 investors concerned have recovered about £330m via the Financial Services Compensation Scheme.

Mr Ford has said he intends to sue the FCA and the accountancy firm PwC for £650m for wrongly forcing the company into administration.