Independent financial adviser (IFA) Towry Law, part of the HHG financial group which recently floated on the London Stock Exchange, faces a flurry of legal actions after it revealed that a hedge fund it marketed has lost nearly all its investors' money.
One investor said a group of 70 to 80 clients had been formed in Hong Kong to take legal action over allegations of the mis-selling of the Global Diversified Trading (GDT) and Global Opportunities Trading hedge funds, which were suspended in September 2002. Both funds were managed by Hong Kong-based Asia Financial Asset Management for about 1,000 clients and marketed by Towry Law International, the offshore subsidiary of the IFA.
Towry Law International already faces legal action from clients who allege it mis-sold geared, with-profits bonds. It is estimated to have sold more than £200m of such bonds to thousands of investors around the world.
After the receipt of a report from liquidator Deloitte on the suspension of GDT, Towry Law told clients last week that "barring any recovery from third parties who may have been negligent or otherwise in breach of their legal duties to the fund, investor return is likely to be nil or negligent (in the range of 0 per cent to 3 per cent of their net investment in the fund)".
It added that the report "would seem to show that a fraud has been committed against the fund ... The liquidator's findings raise the issue of third party litigation."
But Towry Law warned investors there are insufficient assets in GDT to fund legal action against "third parties".
It is believed £17m was invested in GDT, largely by clients of Towry Law International, and only £1m has been recovered by Deloitte. After the liquidator's fees and expenses, only £700,000 is available for investors.