Calls for the FSA to establish a compensation fund

Posted on November 8, 2012

Investors are campaigning for the FSA to look carefully at which
professional services firms have been negligent and that such
negligence allowed the fraudsters at Tiuta to perpetuate the Series 1
Ponzi scheme. We believe at the Action Group that the FSA has a duty
to arrange for the relevant firms (many of which are FSA regulated)
to make significant contributions to a compensation fund for

We have highlighted many times the failings of BDO. We look forward to
BDO repaying all of its fees earned from Tiuta plc and Tiuta
International Limited which in fact derived from monies taken from the
Series 1 Fund (and BDO knew it). However, there are other firms that
have been found wanting. It is clear that the auditors of the Series 1
Fund (Mazars) and the auditors of Tiuta plc (Rawlinson & Hunter) have
a lot of questions to answer.

Capita and Blue Gate Capital have failed in their basic duties when
they approved the Investment Memoranda relating to the Series 1 Fund
as financial promotions. Under the COBS rules of the FSA, the
Investment Memorandum should have been clear, fair and not misleading.
We now realise that the Investment Memorandum and other marketing
materials were little more than a pack of lies intended to deceive
intermediaries and investors. It seems that Tiuta plc was in financial
difficulties when the Series 1 Fund was launched and monies were used
to repay loans to other lenders to Tiuta plc. We now know the key
representations about the Series 1 Fund in the Investment Memoranda
were a pack of lies. Each of the following claims now appear to be
false: claims concerning Tiuta’s successful lending record, the
allegedly exemplary payment record of third-party borrowers to the
Series 1 Fund, the allegedly low to medium risk lending (on relatively
safe loan to value ratios) being undertaken by the Series 1 Fund, the
claims that all loans would be made to third-party borrowers and
secured by way of first fixed charges, etc. We call upon Capita and
Blue Gate to open up their verification files to the FSA relating to
the representations made in the Investment Memoranda. The Investment
Memoranda appear to have been drafted by the de facto CEO of Connaught
Asset Management, an expert in so-called “land-banking” schemes called
Nigel Walter. Had Capita and Blue Gate kept proper records of the loan
book of the Series 1 Fund, they would have discovered the factual
inaccuracies at an early stage of their respective appointments as
“operators” of the Series 1 Fund. There is clearly a lot of evidence
to uncover concerning the “operators”.

There are other firms that are also likely to be in the frame such as
Lupton Fawcett, solicitors to the Series 1 Fund.

The losses to investors appear to have been caused by fraud but
without negligence or worse on the part of professional firms, the
Ponzi scheme could have been stopped at a much earlier stage. They had
their noses in a trough of investors’ cash and they should not be
allowed to walk away without contributing to a compensation scheme.
There are precedents such as the scheme relating to Arch Cru. It will
take a serious effort to put together a compensation package and we
call upon the FSA to make amends for past failures and work with third
parties to devise a compensation scheme for investors.

Posted in: Uncategorized