Carpetbaggers cash in on A&L loophole

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Alliance & Leicester "carpetbaggers", whom the building society tried to shut out of a pounds 1,000 free shares handout when the society floats on the stock market, are in line for cash payouts worth thousands of pounds instead because of a legal loophole.

The society sparked anger from many policyholders last month after announcing that it aimed to give each of its 2.4 million members a fixed amount of 250 shares on flotation.

Other societies, including Halifax and Woolwich, intend to give extra amounts depending on savings balances.

Policyholders who joined the A&L after its 31 December 1995 cut-off date for new accounts cannot vote next month on the planned flotation. And the Building Societies Act says they are therefore not entitled to free shares after conversion in 1997.

However, because accounts opened between 31 December and 16 January, when they were halted, give the "carpetbaggers" all other membership rights, they are still entitled to a cash share of the society's assets. Payouts will be based on about 11 per cent of the amount in a individual's account.

John Denison, an A&L member, said: "A loyal investor who has had pounds 50,000 in an account dating from any time before 31 December will be eligible to vote and, if the proposals go ahead, he will receive the flat rate of 250 shares worth about pounds 1,000. The carpetbagger, who opened an account with pounds 50,000 after that date, is entitled to receive, if the proposals go ahead, a statutory cash bonus of pounds 5,500. I find this beyond belief."

Those benefiting will be among the few thousand who opened accounts in the two-week period in early January, when the A&L finally scrapped membership rights accounts.

The society tried to limit the free cash entitlement by setting 31 January as the final date for boosting the amount in a policyholder's account.

But savers adding to their balances before then will be entitled to the cash.

An A&L spokesman said: "We estimate that the total number of people who will benefit from this loophole is insignificant and we have done everything we can to stop January Joiners, as we call them, from benefiting disproportionately."

He added that the society's flat-rate shares distribution was fair because 83 per cent of the society's eligible members had less than pounds 5,000 in their accounts.

Woolwich said yesterday that none of its carpetbaggers, who joined just before the flotation was announced, would receive similar benefits because, unlike the A&L, its vote would not take place until next year.