Fraud hearing to pit Lloyd's against SEC

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The Independent Online
The Securities and Exchange Commission is poised to intervene unexpectedly against Lloyd's of London in a critical legal case opening in the US today. The world's oldest insurance market is fighting to stop itself facing for the first time allegations of fraud brought by an American investor in a US court.

The legal battle, Charles Leslie vs Lloyd's, will be heard in the fifth circuit of the New Orleans Court of Appeal. It follows an earlier ruling in favour of Robert Leslie, a 74-year-old Texan investor who wants to sue Lloyd's in the US.

The insurance market has so far successfully argued in other US courts that any actions against it should be brought before British judges. But it lost the first round against Mr Leslie in a Texas district court.

A Lloyd's spokesman last night said the market was confident it would overturn the Texas decision with this appeal. "Five other appeal courts in the US have upheld our view. We think they have not followed precedent in this case."

But the involvement of the SEC could be influential. Its counsel, Richard Walker, has been given leave to appear and is expected to give weight to Mr Leslie's case.

Lloyd's is unhappy about the SEC's role. A Lloyd's spokesman said: "The commission has yet to rule whether being a member of Lloyd's is indeed a security. Given this is the case, it is an odd intervention [by Mr Walker]."

While the latest legal skirmish starts in New Orleans, a Lloyd's working party was finalising a report last night that could lead to the death of the traditional individual investor, or name, in favour of corporate capital.

The syndicate structures working party has in effect concluded that the individual names structure is enormously expensive. Further, the involvement of names makes it difficult for investment decisions to be made for than one year at a time.

Under the existing Lloyd's rules, names form new syndicates - or annual ventures - every year. It has been estimated that the cost of doing this alone could amount to pounds 100m and the abolition of the members' agency network could save a further pounds 58m, according to figures from accountants KPMG.

The working party, whose report must be endorsed by the Lloyd's ruling council before any action is taken on it, will not come up with any definite recommendation on the future of names.

One of the working party members said: "The report will just give the bare facts. But these clearly indicate that the way forward is for names to convert to becoming limited liability shareholders."

Chris Stockwell, chairman of the Lloyd's Names Association working party, said that the report was the latest in a series of actions aimed at squeezing out names.

"Lloyd's has financially destroyed the first one-third and is now dealing with the rest."