Woodford investors mount final fight against ‘misleading’ £230m compensation scheme
Burnt investors in Neil Woodford’s collapsed investment fund are mounting a final fight against a proposed £230m redress scheme today as a vote on the payout enters its final hours.
The administrator of Woodford’s eponymous fund, Link Fund Solutions, tabled a compensation deal in April that was signed off by the Financial Conduct Authority (FCA) and would see some 300,000 investors receive compensation.
Investors have until 5pm today to vote to approve or reject the compensation deal.
However, the scheme has faced fierce resistance from investors in recent weeks who argue they are being left out of pocket.
In a letter to the watchdog, seen by City A.M., Andy Anthelogou, co-founder of the Woodford Campaign Group that represents about 700 investors, accused the regulator of working against investors’ interests and trying to avert a hefty payout through the Financial Services Compensation Scheme.
“The FCA has knowingly and wilfully misled, in an attempt to ensure the vote goes the way the FCA desperately needs it to, to avoid a substantial claim on the Financial Services Compensation Scheme,” Anthelogou wrote to FCA chair Ashley Alder. “For all these reasons we feel duty bound to challenge the FCA in relation to its problematic and persistent pattern of misleading communications connected to the Woodford scandal.”
The Woodford fund collapsed in 2019. As losses began to mount at the fund, investors started to cash out. But this left the fund more reliant on assets it had that were harder to sell. As more investors attempted to pull their investments, Woodford was forced to halt withdrawals altogether.
The FCA-backed scheme in April has offered investors £230m in compensation, which the regulator says represents 77p in the pound of losses.
However, the scheme has come under fire from investor groups for its “misleading” presentation and potential to shut down any further related litigation.
Law firm Harcus Parker, which represents around 7500 investors in the fund, said yesterday that if the deal is waived through it will prevent shareholders from suing third parties including Northern Trust, the depository of the Woodford Equity Income Fund, which had a role in overseeing Link, and investment platform Hargreaves Lansdown, which recommended the fund.
“Woodford investors will be asking why the regulator has decided to erode their right to consumer protection and whether this spells the end of consumer protection in the financial services sphere in future,” Damon Parker, a senior partner at Harcus Parker, said.
The law firm has argued that investors could win as much as four times more by rejecting the scheme and pushing Link Fund Solutions into administration, which would then open up a route to claim through the Financial Services Compensation Scheme.
Harcus Parker last month raised concerns about the proposed redress scheme for the affected investors, saying the FCA “materially understates the true extent of the sums lost”.
To reach the 77p in the pound figure, groups say the FCA has focused on the extra losses suffered by investors who were locked in the fund compared with clients who exited immediately before withdrawals were blocked.
A group of MPs has similarly taken aim at the FCA’s role in cleaning up the scandal and said it is “failing” those looking for redress.
The FCA has argued the signed off deal is the best bet for investors and other routes could leave investors with nothing.
“As we have made clear, this redress scheme offers the quickest route for redress for the vast majority of people,” an FCA spokesperson said. “Payouts through other means such as litigation or the FSCS are not guaranteed and will likely take longer to achieve. We firmly believe that what is being offered by Link warrants serious consideration by investors.”
Hargreaves Lansdown has not publicly disclosed how it will vote on the scheme but a spokesperson said it will “vote in the best interest of investors in their fund and in accordance with their legal and regulatory obligations”.
A Link Fund Solutions spokesperson said: “We continue to believe the Scheme is the best option available for investors, both materially enhancing the amount of redress available from LFSL and providing the fastest route for redress possible. Without the Scheme there is no guarantee of any compensation for investors”.