Does the FSA bear direct responsibility for the loss of tens of millions of pounds in a ponzi scheme?

Posted on August 23, 2012

Dear Lord Turner,

Tuita/Blue Gate Captal/Capita/BDO

The FSA regulates all of the above-mentioned firms and yet tens of
millions of pounds have been lost in a ponzi scheme in which they were
involved to a greater or lesser extent. The chief culpit appears to be
Tiuta which appears to have stolen millions from the Connaught Income
Fund Series 1. The Fund was originally called the Guaranteed Low Risk
Income Fund. We doubt that the irony is not missed on you.  It is
extraordinary that Tiuta is to this day still authorised and regulated
by the FSA and yet the regulator has not stepped in to intervene.

It now transpires that many investors put money into the ponzi scheme
after the former CEO of Tiuta gave evidence of the extent of fraud at
Tiuta to the FSA in March 2011. We ask in this letter whether there is
any reason to suspect corruption of the processes of the FSA to
explain why the FSA did not intervene. We should stress that
corruption in its widest sense means that the normal processes at the
FSA have not been followed.

The allegation made by the Action Group against Lorraine Wadhams, the
supervisor of Tiuta at the FSA, has not been refuted by the FSA. It is
that she worked with Mike Davies who had pivotal roles both at Tiuta
and Connaught. She had previously worked as Head of Operations whilst
Mike Davies was Compliance Officer at Infinity Mortgages. It is most
extraordinary that this fact did not lead Ms Wadhams to stand aside
from regulating Tiuta. What is the impropriety of regulating someone
with whom you have worked? Well, the main issue is whether the FSA’s
normal processes have been followed or was some extra latitude allowed
for the alledgedly criminal enterprise at Tiuta. One would normally
expect that a report of a serious fraud involving 60 or more allegedly
bogus loans from the CEO of a regulated company to the FSA would lead
to vigorous regulatory action by the FSA. The fact that the FSA failed
to act after it had been alerted means that new investors were allowed
to invest in the ponzi scheme. This is little short of a scandal.

At the meeting with investors on 13 August, Mr Davies referred to Ms
Wadhams as “my contact” at the FSA. This gave the impression that Mr
Davies has influence over the FSA i.e. that he is untouchable. We need
a full investigation into this relationship and whether Ms Wadhams has
relied unduly on mis- information from Mike Davies.

We question whether Ms Wadhams has acted in accordance with the FSA’s
own code on conduct for employees. When tens of millions have gone
missing we are entitled to demand whether there has been corruption.

We also question the role of BDO which knew in January 2011 that Tiuta
was insolvent and about the 60 bogus loans. Under FSA principle 11, it
is meant to inform the FSA of any information which it would
anticipate that the FSA would wish to be notified about. It was meant
to report monthly to the FSA. We question whether BDO made proper
reports to the FSA and whether it was compromised because it was
hoping to be appointed to the lucrative role of administrator of Tiuta
and was indeed appointed to the role of administrator of Tiuta
International in July 2012.

One wonders what the point of regulation is when everyone involved is
out to enrich themselves with little care for investors. The two
operators of the scheme, Capita and Blue Gate failed to exercise
proper controls over the spending of cash belonging to the Fund or
repayment of monies to the Fund. Similarly, Connaught failed to do so.
With all of these parties with their snouts in the trough, they could
at least have safeguarded the assets of investors. Furthermore, we
understand that Capita and Blue Gate approved the investment
memorandum as a financial promotion and yet failed to ensure that
Connaught and Tiuta followed the promises as to how money was to be

The Tiuta saga is emblematic of the failure of regulation in Britain.
There were multiple failures by many parties, not least by the FSA
which could and should have intervened. We demand an investigation
into Ms Wadhams. It is critical that investors know why the FSA failed
in its basic duty to protect investors.

Yours sincerely


The Connaught Action Group

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