Two split-cap firms agree to compensation

Gartmore and Legg Mason are thought to be among the investment companies that have agreed to demands by the Financial Services Authority to pay compensation to thousands of investors who lost money in split-capital investment trusts.

The FSA has now had responses from all but one of the 21 companies it called to a meeting on 2 March at which it said it had evidence of collusion between some members of a "magic circle" of companies involved with splits.

John Tiner, the chief executive of the FSA, told the group that the FSA had details in transcripts of e-mails and telephone calls of agreements between some of the magic circle to prop up the share price of each other's trusts by cross investing.

The FSA, which has been sifting through the transcripts and interviewing individuals for the past two years, will now go ahead with its plan to get companies to agree a compensation scheme. The companies will also be publicly criticised for their alleged misdeeds.

More than half of the 21 companies at the meeting have told the FSA they were keen to sign up to the scheme, though some have agreed to take part only on the basis that they will not have to admit legal liability for collusion. They also want the scheme to be an end to the regulator's investigation into the distressed split-cap sector, which would mean it could not then pursue possible prosecutions of individuals involved.

The FSA has asked Lord Alexander of Weedon, a former chairman of NatWest, to take over as leader of the mediation process with the companies. It has also employed the accountants PriceWaterhouseCoopers to calculate compensation payments.