Legal wrangle holds up split cap deal

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The Independent Online

A last-minute legal dispute between Collins Stewart and ABN Amro was last night threatening to derail a £194m compensation deal to settle the split cap investment scandal.

A last-minute legal dispute between Collins Stewart and ABN Amro was last night threatening to derail a £194m compensation deal to settle the split cap investment scandal.

Collins Stewart, the investment firm headed by Terry Smith, refused to sign the final documents which landed on the desks of the 17 chief executives involved in the deal at lunchtime. Mr Smith's objections relate to the introduction of a clause which will allow ABN Amro to sue companies in the settlement if it is sued by a third party.

All other parties in the settlement have agreed to allow ABN to retain its right to sue them and have agreed not to pursue legal action against any of the firms in the settlement. Although the other companies are happy with ABN's exclusion, Collins Stewart is unwilling to close the deal unless ABN comes in line.

Collins Stewart finally made its £10m payment to the compensation fund on Wednesday. The £194m fund is with Clifford Chance, the Financial Services Authority's lawyers.

All parties involved are keen to see the deal closed today. However, if Collins Stewart and ABN cannot find a compromise, that may not happen.

Exeter Fund Managers, BFS Investments, BC Asset Management and Teather & Greenwood will remain outside the settlement and will continue in separate negotiations with the FSA. Investors in the split cap funds of these firms will not be eligible for compensation from the main settlement pot unless they are brought in later, with the consent of the other members.

The final hold-up ends a week of chaos in the split cap saga, one of the most humiliating chapters in the FSA's history.

The final settlement pot is some £156m less than John Tiner, the FSA chief executive, had originally called for, and the deal has been conducted on a no-blame basis. Initially, one of Mr Tiner's priorities was to ensure that the firms officially accepted responsibility for the sector's collapse.

The FSA first came under fire for its handling of the problem more than two years ago, when the Treasury Select Committee accused the former FSA chairman, Sir Howard Davies, of being "asleep on the job". Months later, they accused Mr Tiner of being "comatose".

An investigation ensued, culminating in 21 firms being summoned to the regulator's offices in March. While the FSA claimed to have incriminating evidence against all the companies, lawyers for the firms were convinced that most of the evidence was not sufficient for the regulator to secure a victory in the courts or a tribunal.

In the early days of negotiations, Mr Tiner's frustration led him to make unrealistic ultimatums to the firms, which they ignored. His decision to publicly announce his intention to secure £350m was seen as his biggest mistake. The final figure was less than 60 per cent of this target.

Although the main saga is over, the FSA's dispute with BFS Investments may end in a battle at the Financial Services & Markets Tribunal. BFS is believed to have offered a small seven-figure sum, as it has few assets. However, its founder and major shareholder, Tony Reid, has taken more than £7m out of the business in the past four years.

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