Potentially ground-breaking legal action to raise £70m in compensation for alleged mis-selling of split capital investment trusts is to be unveiled within a week, accord- ing to lawyers involved.
Leon Kaye, the solicitors' firm, is finalising its claim against split cap providers including Aberdeen Asset Management, Exeter Investment, BFS Investment, Gartmore and Framlington.
The firm will send a "letter of claim" to each firm by next Wednesday, requesting compensation for around 1,000 investors seeking legal redress for losing thousands of pounds in troubled splits.
Leon Kaye, head of his eponymous firm, said: "The claim will be based on the marketing material sent out by split cap companies and the investment policy adopted by fund managers – especially the cross-holding of other splits and their high gearing. Neither the policy nor the marketing were in line with investors' reasonable expectations of splits as low risk funds."
He includes the prospectus for Aberdeen's progressive growth unit trust, launched in 2000. The trust is not a split cap itself, but invests heavily in splits, many of which are also managed by Aberdeen. Yet despite its high exposure, the prospectus says the unit trust, which has dropped dramatically in value this year, is "especially suitable for risk adverse investors".
Separately, Class Law, which is acting for another group of disgruntled investors, is today sending letters to its clients explaining the action against providers and intermediaries who recommended the products, including the stockbrokers Killik & Co and Brewin Dolphin.
Together, Class Law and Leon Kaye aim to retrieve £70m, their estimate of what investors have lost from investing in split caps, so-called because they include a mix of income and growth shares.
Piers Currie, marketing director of Aberdeen investment trusts, said: "We are sympathetic to investors but we believe our promotions were fair and balanced." His is a view which would be echoed by the other providers.
He also urged investors who believe they were mis-sold to contact the Financial Ombudsman, rather than lawyers; the process is free for individuals and binding on providers.
Aberdeen has passed on "a handful" of complaints about splits to the ombudsman for adjudication but has not yet paid any compensation. If the legal action is successful, the impact with be significant for the fund management industry.
It raises the possibility that investors may expect compensation if their return falls below expectations under a wide set of circumstances. This could in turn dramatically reduce the risk fund managers are prepared to take.Reuse content