Tag: Link ACD

ShareSoc Woodford Legal Claim Seminar

There are several legal firms who are mounting cases to try and gain some redress for the investors but ShareSoc is backing Leigh Day who presented at the seminar. They are focussed on a claim against Link Fund Solutions, the Authorised Corporate Director (ACD) for the fund and which is part of a large financial group (Link).  Leigh Day’s investigations lead it to believe that Link allowed WEIF to hold excessive levels of illiquid or difficult-to-sell investments, and that this caused investors significant loss. In doing so, they consider Link breached the rules of the FCA Handbook and failed to properly carry out the management function of the Woodford Equity Income Fund. They have already issued a letter before action and received a rebuttal response from Link so have now filed a case in the High Court, i.e. the case is progressing – see https://woodfordpayback.co.uk/ for more details and how to join the claim.

A representative of Leigh Day presented the facts and the basis for their claim against Link, but as usual when lawyers present cases, this might not have been exactly clear for the average person. Lawyers seem to want to display their intelligence and knowledge in such presentations which might impress corporate clients but is inappropriate for the general public. Those who invested in the Woodford fund might not have been the most financially sophisticated individuals with many of them relying on recommendations from brokers such as Hargreaves Lansdown (HL).

It seems that Leigh Day cannot identify a good case against Neil Woodford himself, against his management company or against HL. This is unfortunate. Link and the FCA might have fallen down on the job of regulating WEIF and monitoring what Neil Woodford was doing but in essence it was his actions that eventually brought about the collapse. Not only did he invest in companies that were inappropriate for an “equity income” fund but many of them were high risk. Liquidity evaporated when fund performance was poor and negative publicity hit the fund at which point everyone wanted out.

The Leigh Day claim is certainly worth supporting in my view but they have only managed to sign up about 11,000 claimants so far. Why is that? No doubt the first problem is that they do not have access to a register of investors. Both Link and HL have rebutted such requests which is morally indefensible. The FCA should surely step in to ensure that happens if the required information cannot be obtained using the normal disclosure responsibility in legal cases.

Indeed the FCA could take much tougher action by enforcing compensation if they had a mind to do so, but as usual they are proving toothless.

One point I was not aware of before that came out in the meeting was that Grant Thornton were the auditors of the WEIF fund and should surely have queried the low liquidity. Another black mark against that firm.

Apart from the problem for Leigh Day getting through to investors there are a number of other difficulties in obtaining supporters for such legal actions. These are: 1) Investors are often elderly and suffer from sloth – repeated reminders are necessary to get them on board; 2) Investors are keen to forget their own mistakes in investing in the fund; 3) The time to likely obtain a judgement which is several years puts people off; 4) The legal case appears complex and the contracts between investors and the lawyers can be complicated – investors might also doubt that they are not facing risks of costs. The way the case is communicated to investors needs to be handled very carefully to ensure investors understand what is being done and why they do not face risks from the legal action.

Another issue is that ShareSoc and Leigh Day have pointed out that another approach might be to complain to the Financial Ombudsman. From my experience of that organisation, it would be a long and tedious process with little certainty of satisfaction. I would personally prefer to rely on an aggressive law firm to obtain some redress.

Leigh Day certainly seem to have acted competently so far in pursuing their legal action and have moved relatively quickly. I would also encourage you to write to your Member of Parliament to request that the Government ensures that the FCA (Financial Conduct Authority) takes much stronger action over these events.  

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FairFX AGM Report, Woodford Fund Issues and Zero Carbon

Firstly a brief report on the Annual General Meeting of FairFX (FFX) which I attended today in the City. Only I and one other shareholder asked any questions, and there may not have been many others there.

This is a payments company which had an initial focus on the provision of foreign exchange but they now do a lot more. They are planning to change the name in the near future and there was a resolution tabled to change the articles to enable them to do this without reverting to shareholders. I abstained on that because I prefer companies to put a change of name to investors. But talking to one of the directors after the meeting it sounds like they are taking a professional approach to the name change.

Revenue of the company was up 69% last year to £26 million with profits of £2.6 million. Adjusted EBITDA was up 687% if you wish to look on the bright side. There was a positive AGM announcement with phrases such as “a strong year to date” both in revenue and margins. Full year trading should be in line with market expectations.

The accounts of payment/credit card companies can be complex as I know from being a director of one of them in the past. So I asked a few questions on that area.

FairFX now exclude customer deposits from their accounts which is a definite improvement. But it does capitalise a lot of software development – £4.7 million last year, which I have no concerns about so long as it is in accordance with accounting standards. In response to a question I was told this level of expenditure might be a bit more in the current year. They are building a new unified front end on their 3 applications (platforms) – some of which were acquired.

I queried the collateral requirements of financial institutions they deal with (see page 6 of the Annual Report) and was told this is taken out of the cash figure on the balance sheet and is now in “Other receivables” – hence the large increase in that figure plus the impact of acquisitions on it and general increase in turnover.

Wirecard was mentioned during these questions. Apparently FairFX has historically used them as a “Card Issuer” but they now have the capability to issue cards themselves which will improve margins – customers will be migrated over. That’s reassuring because Wirecard has been getting some very negative publicity in the FT lately.

The other shareholder attending asked about the economic trends and their impact. Corporates are apparently sitting on their hands re FX and clearly Brexit risk might be impacting the demand for personal FX credit cards as holidays in Europe might be impacted by the uncertainty. However the CEO seemed confident about the future.

I might sign up for one of their “Everywhere” Pre-paid Credit Cards which looks cheaper than the company I am using at present.

This is one of those companies that has stopped issuing paper proxy forms – promoted by their Registrar Link Asset Services. I complained about that. I was also not happy that the resolutions were taken on a poll rather than a show of hands. But I understand the proxy counts were all higher than 99% so that was an academic issue.

Link acting as ACD for Woodford Funds

Link, in the guise of “Link Fund Solutions”, also got their name in the FT today over their activities as the Authorised Corporate Director (ACD) of the Woodford Equity Income Fund. An ACD is supposed to ensure that a fund sticks to the rules. They would have been involved in the decision to close the fund to redemptions.

It also seems very odd to me that they approved the listing of some fund holdings in Guernsey to get around the limitations of unlisted holdings. That was clearly an abuse as the reality was that these were not listing that provided any significant liquidity, with minimal dealing taking place. It’s the substance that counts, not how it might simply appear to meet the technical rules.

This looks to be yet another case of those who are supposed to be keeping financial operators in line not doing their job properly. But ask who is paying them.

FT article on Net Zero Emissions

I commented previously on Mrs May’s commitment to go for net zero carbon emissions by 2050. I called it suicidal.

There is a very good article on this topic in the FT today by Jonathan Ford (entitled “Net Zero Emissions Require a Wartime Level of Mobilisation”). The article explains how easy it is to get to the £1 Trillion cost mentioned by the Chancellor on required housing changes alone to remove all fossil fuel consumption. There may be some payback from the investment required but the payback period might be 37 years!

The whole energy system will need to be rebuilt and some of the required technologies (e.g. carbon capture) do not yet exist on a commercial basis. For more details go to the web site of the Committee on Climate Change and particularly the Technical Report present here: https://www.theccc.org.uk/publication/net-zero-technical-report/

If this plan is proceeded with there are enormous costs and enormous risks involved. But it will certainly have a major impact on not just our way of lives but on many UK companies many of which consume large amounts of power. That is definitely something investors must keep an eye on. Companies like FairFX may be one of the few that are not affected in a big way as they only manufacture electronic transactions. That’s assuming the rest of the economy and consumers are not too badly depressed by the changes as a result of course.

Nobel prize winning economist William Nordhaus has shown how a zero-carbon target is unwise. See this note for more information: https://www.econlib.org/library/Columns/y2018/MurphyNordhaus.html

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

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