Brewin faces class action over split-cap debacle

The first in a series of class legal actions against firms involved in the split-capital investment trust debacle was finally filed at the High Court yesterday, with at least 14 more to follow.

The first in a series of class legal actions against firms involved in the split-capital investment trust debacle was finally filed at the High Court yesterday, with at least 14 more to follow.

Brewin Dolphin, the retail stockbroker, is being taken to court over alleged mis-selling of split-cap trusts to investors. Class Law, which is leading the action, says its aim is to secure compensation for its clients, some of whom saw their entire savings wiped out when the split-cap sector collapsed in the recent bear market. In total, Class Law it is now acting for about 700 split-cap investors.

Stephen Alexander, the founding partner of Class Law, said he was confident of success. "In order to get insurance to cover claims, you have to have at least a 66 per cent chance of winning. We have secured our insurance and we're very confident of success," he said.

The actions will focus on whether brokers, advisers and fund managers made their clients sufficiently aware of the risks involved with investing in the funds. Many investors say they were sold the products as low risk. However, the high levels of gearing within the funds meant they could collapse very quickly in the event of a serious and prolonged bear market.

One fund, run by Aberdeen Asset Management, was advertised as "The one-year old that lets you sleep at night".

The companies involved in the split-cap saga are currently trying to thrash out a deal with the Financial Services Authority, which has recently concluded a lengthy investigation into the sector. The regulator claims to have incriminating evidence against 21 firms, which it says prove that there was collusion across the sector.

The FSA is seeking hundreds of millions of pounds in compensation for investors.

Last month, Terry Smith, the chief executive of Collins Stewart, delivered a compromise deal to the regulator, saying the main players in the industry were willing to put up a collective sum of around £100m pounds.

However, the deal was on the condition that the case is then closed and no blame is apportioned. John Tiner, the FSA's chief executive, is now considering whether to accept the deal or to push ahead with disciplinary hearings against the firms.

Class Law has been working on the actions for more than two years. Mr Alexander said that news of his class actions was likely to leave the firms unlikely to agree to any further demands the FSA makes, resigning themselves to settling the matter in court.