Split-cap broker and the secret meeting of the 'magic circle'

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The Independent Online

David Thomas, one of the stockbrokers at the centre of the split-capital trust scandal, has revealed a previously secret meeting of brokers just as the sector went into freefall costing investors billions.

David Thomas, one of the stockbrokers at the centre of the split-capital trust scandal, has revealed a previously secret meeting of brokers just as the sector went into freefall costing investors billions.

The meeting is the first evidence of collusion among the "magic circle" of City figures behind the controversial trusts.

In an exclusive series of interviews with The Independent on Sunday (carried on pages 6 and 7), Mr Thomas has also damned the sector's regulator, the Financial Services Authority, for its treatment of the splits' brokers and fund managers. He accused its officials of being ignorant "gangsters" using "un-English behaviour".

The meeting of four or five brokers on 6 August 2001 discussed whether new investors to the sector could be found and whether it was feasible to limit the amount of shares being issued from new trusts, according to Mr Thomas.

In August 2001, the sector was just starting to suffer from a lack of demand for the splits' shares and, therefore, from falling prices. These falls had a knock-on effect on other splits that held their shares, an effect multiplied by high levels of debt.

By December 2002, after raising more than £9bn in two years, 39 splits out of a total of 140 had seen their shares suspended.

Mr Thomas said: "There was a well-known particular meeting: a merchant bank and four or five of us brokers met to talk about the situation. I wrote the minutes of that meeting. You could argue that that was collusion. We were exchanging views [but] we didn't ever let out any confidential information which we shouldn't have talked about to anybody.

"There was absolutely no agreement to do anything at all. Now the hot air that was talked [by the FSA] - 'oh, this was collusion, these were people agreeing to support each other's issues [of new funds]' - nonsense; unprovable, which is why the collusion arguments have suddenly been dropped. And they [the FSA] have no further argument [but] want heads on spikes without even showing any evidence.

"Isn't this un-English but they are acting like gangsters ... They started from a position of complete ignorance."

An FSA spokesman said it was aware of the meetings and conversations revealed by Mr Thomas. However, the regulator could not comment on specifics as its investigations were continuing into four firms and eight individuals.

On Christmas Eve, the FSA dropped an investigation and agreed a no-fault settlement with 18 fund managers and brokers - including ABN Amro, Collins Stewart, UBS and HSBC - in return for a £194m compensation package for some retail investors.

These brokers declined to comment on whether they attended the meeting.

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