Thursday 24 August 2017

More burnt investors join queue for redress as Custom House drags on

From left, non-executive director John Mulholland, CEO Harry Cassidy, and investment director John Whyte, all formerly of Custom House Capital, which has been called a 'sort of a Ponzi scheme'
From left, non-executive director John Mulholland, CEO Harry Cassidy, and investment director John Whyte, all formerly of Custom House Capital, which has been called a 'sort of a Ponzi scheme'
Louise McBride

Louise McBride

The 200 or so people who lost money after investing in the Dublin investment firm Asset Management Trust (AMT) should get any compensation due to them by the end of this year, according to the head of the State's investor redress scheme.

The Central Bank froze the accounts of AMT in April 2014 following a probe it had conducted into client assets, investment issues and other matters at the firm.

AMT itself was wound down about a year ago and its customers were invited to transfer their business to another investment firm at the time.

A few weeks ago, the Central Bank announced that clients of AMT would be compensated by the State's investor compensation scheme because AMT was not in a position to give back its investors any money it owed to them. The bank said that this was due to the firm's financial circumstances.

The ICCL will be writing to all of AMT's clients, inviting them to apply for compensation where AMT failed to return money or investment instruments which are owed to them.

Michael Fagan, chief operations officer with the Investor Compensation Company Limited (ICCL), which runs the statutory investor compensation scheme, said the ICCL hopes to settle all AMT compensation claims by the end of this year.

"It would be our expectation that the claims from AMT investors will be at the lower end of the scale," said Fagan. "Most of them won't be near the €20,000 compensation limit but this will depend on the size of each client's portfolio."

The ICCL pays up to €20,000 in compensation to investors where a firm is unable, due to financial circumstances, to return money or investments owed to clients - as long as the firm is authorised and the investment itself is covered by the ICCL's redress scheme.

Should AMT clients get the compensation by the end of the year, they will be a lot luckier than many of the burnt investors in other firms who have waited years for redress.

Three out of four investors in the Dublin investment firm Custom House Capital (CHC) are still awaiting compensation from the ICCL - more than four years after the firm collapsed.

"AMT should be a lot more straightforward than CHC," said Fagan. "The amount of funds which were involved in CHC were much more significant than the case of AMT. CHC had a lot more clients than AMT did. The CHC case was also very complex."

CHC imploded in late October 2011 after High Court inspectors uncovered the "systematic and deliberate misuse" of more than €56m of assets and cash belonging to clients of the firm. Around the time of its collapse, a High Court judge described CHC as "a sort of Irish Ponzi scheme".

Almost 2,000 CHC investors have applied to the ICCL for compensation. Only 553 of these have received compensation so far. About 1,400 CHC investors are still in limbo as to when - if ever - they will receive compensation.

"Most of the outstanding CHC claims relate to pooled assets - which is where most of the large-scale fraud took place," said Fagan.

It could be another two years before the CHC investors who have money in pooled assets find out if they are entitled to redress. The liquidator for CHC has previously indicated that it could take that long for him to be in position to determine what compensation, if any, such investors will get.

"It is the process of tracing ownership of these pooled assets which is taking so much time," said Fagan. "We are trying to see if there is any possibility that the payment of these outstanding claims [to CHC investors] can be accelerated because this has dragged on for a few years."

The ICCL, however, doesn't appear to be having much luck in its efforts to speed up investor compensation. In December 2014, the ICCL told this paper that it would support any moves to speed up compensation for investors. More than a year later, 1,400 CHC investors are still facing a two-year wait for redress.

CHC investors are not the only ones who have had to wait for compensation.

Six years after the collapse of the Cork stockbrokers, W&R Morrogh, in 2001, about a third of its clients were still awaiting compensation. The firm had about 9,000 clients at the time it went under and 2,600 of these were affected by the collapse.

Some clients lost hundreds of thousands of euro. All investors in Morrogh who were eligible for financial redress have now received it, according to the ICCL.

The liquidation of a firm is usually cumbersome and lengthy - and this is one of the main reasons that so many investors in failed firms, such as Morrogh and CHC, have had to wait years for compensation from the ICCL.

AMT is a very different case - let's hope its clients don't have to wait so long for redress.

Sunday Indo Business

Also in Business