It is thought that regulators are focusing on several mysterious unlisted companies, many of them Norwegian, in which Peter Young, a fund manager suspended by Morgan Grenfell Asset Management, had invested money belonging to some 90,000 investors.
Inquiries among eight Norwegian specialist analysts yesterday failed to find any who recognised the names of some of the firms in which Mr Young had invested.
The European Growth Trust, one of the funds he managed, staked 1.31 per cent and 1.00 per cent respectively of its assets in Norwegian companies Syteminvest and Waferprof Holding, neither of which rang any bells with the specialists.
One market source speculated that Mr Young could have been using some of the unlisted firms to buy his investments in other companies, which had become unprofitable after stocks in the companies plunged this year.
Among the recognised Norwegian-quoted companies, the share price of Sysdeco Group, in which the European Capital Growth Fund had invested 8.17 per cent of its assets, had fallen to around 45 crowns yesterday from levels around 225 crowns in late February - an 80 per cent slump.
Morgan Grenfell Asset Management last night moved to freeze the assets of Mr Young as part of its investigation into suspected irregularities in three funds in which pounds 1.4bn is invested. An injunction was taken out in conjunction with Royal Bank of Scotland, trustee to the two funds he ran. Morgan Grenfell declined to comment when asked if this should be taken as an allegation that Mr Young was suspected of using the funds' assets for personal gain or fraud.
Lawyers acting for Morgan Grenfell have also engaged specialist financial investigators to help their inquiries into the mystery surrounding the three European investment funds.
A senior executive from Network Security Management (NSM), a subsidiary of Hambros, the merchant bankers, called yesterday at the home of Mr Young, to arrange a meeting with him.
Allan McDonagh, deputy managing director of NSM, confirmed that his firm was working on behalf of Morgan Grenfell. He added that NSM specialised, among other things, in fraud detection. But he said: "I wouldn't read anything into that."
Neighbours at Mr Young's newly built, luxury detached home in Amersham, Buckinghamshire, said they were mystified by what had happened to the latest arrival in their small, exclusive close.
One person, who refused to be named, said Mr Young had barely moved into his pounds 400,000 home a few weeks earlier. "He seems like quite a nice person but we haven't seen anything of him or his children yet, so it's hard to make a judgement."
Mr Young left home at 10.30am yesterday with his wife. He said he had been told not to make any comments about the Morgan Grenfell affair.
The home remained empty throughout the day. There were signs that its occupants have only recently moved in. Electrical work to the gates is still not completed and the lawn appears to have been freshly planted.
Dealing in the funds, suspended while investigations were conducted into "potential irregularities in the valuation of unquoted securities", was due to resume today.
But in an effort to instill investor confidence in the funds, Deutsche Bank, which owns Deutsche Morgan Grenfell, bought up many of these unlisted securities at a price estimated to have cost the German banking giant at least pounds 150m.
Mr Young, 38, ran two of the funds suspended at the start of the week - Morgan Grenfell European Growth Trust, a unit trust, and Dublin-listed Morgan Grenfell European Capital Growth Fund. The third fund, Morgan Grenfell Europa, is run by Stewart Armer, who has not been suspended and is not under investigation.
Carnegie, the broker cited in the European Growth Trust annual report as having taken 10 per cent of the broking commissions paid out by the fund last year, declined to comment.
It also emerged that Ice Securities, hired to value some of the securities in the fund, had been visited by the regulator. Christopher Woodgate, chairman of the eight-partner boutique, said it had been hired in July to value "certain assets''.
Meanwhile, all large fund managers are tightening up their control systems, according to senior executives in the industry, who said the Morgan Grenfell problem underlined the need for perpetual vigilance.
The Association of Unit Trusts and Investment Funds welcomed Morgan Grenfell's promise that no investor would lose money.
Philip Warland, chief executive, said: "No unit trust investor has ever lost any money as a result of irregularities."
However, many of the 90,000 investors in the two unit trusts and the fund at the centre of the investigation have been flooding their financial advisers with calls.
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