FSA turning up the pressure on split-cap companies

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The Independent Online

The Financial Services Authority's investigation into the split capital investment trust scandal has stepped up a gear after the regulator launched a major assault to bring the companies involved with the trusts to the mediating table.

In a push to convince companies to consider making a compensation settlement, the FSA last week sent out to a number of the 21 companies involved documents revealing more of the case it has built up against them.

A strongly worded letter accompanying the documents said the FSA believed the alleged conduct of the companies involved were the 'most serious it has seen', and said the companies had flouted its 'principles of business' that set out the standards of integrity expected from regulated firms.

The small number of companies that have agreed to the FSA's confidentiality agreement received the documents sent out last week and the regulator is now awaiting a response. They outline the alleged case against the individual company concerned and include transcripts of conversations between firms.

Some companies, however, are stalling over the confidentiality agreement, which bans them from disclosing evidence but at the same time is not binding on the regulator.

Up to 50,000 people have lost money after they invested in split cap trusts, some of which were marketed as low-risk investments. A number were in fact highly geared to the stock market and up to 40 have been suspended from trading or appointed receivers.

Estimates suggest consumers have lost more than £620m in ailing split-cap trusts. The FSA has been investigating a number of fund managers and brokers over claims that the trusts were mis-sold and that managers cross-invested in each other's trusts to artificially inflate their share prices.

After accumulating masses of documentation, the FSA has asked 21 companies to participate in a collective compensation scheme, but the negotiations have been fraught with difficulties.

A spokesman for the FSA yesterday said the regulator was not prepared to "let the issue drift". It will begin a formal mediation process with the companies that have shown they are willing to co-operate.

Those that are still holding out are likely to see disciplinary action taken against them. "We are determined to see this through and where it goes next depends on the firms involved. It is in their hands, but we would very much like everyone to be part of the mediation process," a spokesman for the FSA said.

PricewaterhouseCoopers is working on behalf of the FSA to calculate how much compensation is due.

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