FSA looks into Aberdeen's splits dealing

Watchdog met firms to talk through allegations of collusion over propping up share prices, but only three agreed to compensation
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The Independent Online

The Financial Services Authority is probing unusual dealing in trusts managed by Aberdeen Asset Management, the fund company at the centre of the split capital investment trust crisis.

Aberdeen was the fund manager with the largest involvement in the crisis that hit the trusts - investments that have at least two different classes of shares. At least six of the funds Aberdeen ran have collapsed.

The FSA said it had looked at the dealing of the trusts for allegations of collusions, and had "talked through this point" with all firms involved in a meeting to discuss compensation two weeks ago.

The meeting, which aimed to find a compensation deal for investors in splits, broke up after only three of the 21 companies attending agreed to a compensation package.

The FSA said that it had looked at attempts by firms to prop up each other's share prices and whether this had been in the interests of the individual trusts, which are separate companies legally obliged to operate in the interests of only their own shareholders, to buy those assets and if a fair price was received.

In the Aberdeen Preferred Income Trust, for example, concerns have been raised about its dealing leading up to, and after, its rescue rights issue in January 2002. AbPref issued a placing document on 19 December 2001 trying to raise £62m supposedly to boost its net assets and in the interests of all shareholders.

But in a falling stock market there were few buyers of splits and the bid-offer spreads would have widened considerably for any seller. In this market, in the final few weeks leading up to the release of placing documents, AbPref sold some of its portfolio of splits, also managed by Aberdeen, to other Aber-deen-run trusts.

Using the regulatory news service announcements at this time, which shows trading a few days earlier, Aberdeen on 7 December 2001 sold 6.9 per cent of Jove's income shares, another trust it managed, from AbPref into Real Estate Opportunities, which it also controlled. This pattern was repeated another four times in seven days, beside other trading, where AbPref sold large amounts of stock to other Aberdeen-run trusts.

After the placing was successfully completed in January, AbPref bought splits from other Aberdeen-run trusts, for example 6.9 per cent of New Fulcrum's ordinary shares from Reo on 25 January 2002 and 1.5 per cent of Investec European Growth & Income from Aberdeen on 28 January.

However, the rescue rights issue only supported AbPref's share price for a short period before its eventual collapse into receivership. David Watson, a lawyer at Class Law, which is representing clients in collapsed Aberdeen-run trusts, said he had written last week to the secretary of one such trust, St David's, requesting an investigation for potential "conflict of interest" into similar trading to those made by AbPref at around the same time in December 2001.

Aberdeen said the FSA had told it not to comment about the meeting or the investigation of allegations of collusion.

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