Outsourcing giant Capita is facing a £100m payout for collapsed fund it operated
City regulators are considering whether to slap outsourcing group Capita with an order to pay more than £100million to investors in a collapsed fund it operated.
The Connaught Income Fund Series 1, operated by Capita until 2009, was suspended in 2012. The fund had invested some £106million with bridging loans company Tiuta, where an executive later discovered a black hole in the accounts due to a string of defective loans.
Furious investors lost some £70million and say Capita failed to inform them of concerns it had about the fund and Tiuta’s activities.
Scam: Investors in the Connaught Income Fund Series 1 operated by Capita lost some £70million
They claim Capita knew, but did not tell investors, that Connaught was founded and chaired by Nigel Walter, who had previously been associated with allegations, subsequently proven, of the £70million UKLI land banking scam.
Capita demanded he resign when Walter’s past came to light, but did not inform investors in the fund. Investors say Capita also failed to tell them when it realised that Tiuta was using investors’ money to make loans outside the terms of an investment memorandum governing the fund.
The Mail has seen minutes of a meeting attended by Connaught and at least one director of Capita showing that Capita feared Tiuta was making loans it should not have done.
Capita later resigned its role and passed operatorship to a small firm called Blue Gate Capital, which could not stand behind investors’ losses.
The FTSE 100-listed outsourcer also took at face value a false assertion in the investment memorandum that the fund was audited by Ernst & Young, investors claim.
The Connaught Action Group, seeking redress for investors, has asked the Financial Conduct Authority to issue a ‘restitution order’ forcing the company to make good investors’ losses.
An investment industry source said: ‘This is the first real test of whether the FCA is really up for it.’ An FCA spokesman said: ‘Although the Connaught Funds are outside of our regulatory scope, we have nonetheless continually monitored their situation’.
‘Since issues with the Connaught Funds came to our attention, it has been high on our agenda and we have assigned significant resources to it.’
Mark Bishop, of the Connaught Action Group, said: ‘There are only two types of losses: the ones that took place before Capita resigned, which are their fault, and the ones that took place after, which are also their fault.’
‘If Capita had blown the whistle, the fund would have been closed down.’
He said that Capita (down 22p at 1037p) should pay back investors and try to recoup its losses via the administration of the Connaught fund, being run by Duff & Phelps. ‘If all goes well, they’ll get back a proportion of their investment from the people who perpetrated this alleged fraud.’
He said investors wanted around £110million, based on their initial investment and lost returns since the fund collapsed.
George Patellis, who blew the whistle on defective loans at Tiuta after being recruited as chief executive, said: ‘I didn’t know this when I blew the whistle, but there’s a lot of evidence to show that they had major issues. They [Capita] suspended the fund for two months.’
But Capita says it resigned operatorship of the Connaught fund as part of a ‘strategic decision’ to focus on other investments. Capita is already facing about £25million in claims from some 800 investors in the collapsed Arch Cru funds, which were also managed by the company.
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