FSA piles pressure on split-cap firms

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The Independent Online

The Financial Services Authority yesterday stepped up the pressure on the 21 firms involved in the split capital investment trust débâcle by sending them individual letters detailing their alleged wrongdoings.

The move is an attempt by the FSA to convince the firms that it has a mass of evidence that they acted against the interest of shareholders in the distressed split capital sector.

The FSA wants the group of 21 - that includes fund managers and brokers - to pay compensation to the thousands of investors who lost money when many splits collapsed into administration in the past two years. However, until now, several of the firms involved have resisted, saying the FSA does not have evidence that they colluded as part of a "magic circle" to boost the share price of their own split capital funds through a web of cross investments.

The FSA will send out "schedules" to each firm it has identified as being linked to the magic circle, giving details for the first time of its evidence against them. The schedules will include transcripts of e-mails and telephone calls between individuals on the topic of share sales in various split capital funds.

Many of the firms involved are now privately saying they want to enter negotiations with the FSA over possible settlement deals because they are keen to put an end to the saga.

But it is likely that there will be furious negotiations over the final bill, with some close to the companies quoting a figure of £100m as the sum that they would collectively be prepared to pay. Others have calculated that investors have lost at least £600m from the slump in the share price of split capital funds.

The FSA has employed forensic accountants with PricewaterhouseCoopers to help it establish what it thinks firms should pay.