Keydata founder hits back after £75m fine over 'death bonds'

Stewart Ford was slapped with a record-breaking £75m fine, has hit back with a £700m High Court claim against the Financial Conduct Authority (Reuters)

Stewart Ford, the founder of the insolvent investment firm Keydata who was slapped with a record-breaking £75m fine, has hit back with a £700m High Court claim against the Financial Conduct Authority (FCA) and the accountants PwC.

On Tuesday morning, the City watchdog launched a legal battle to fine Keydata’s former boss £75m – the amount it claimed he made in fees and commissions from some 37,000 investors who pumped more than £475m into so-called “death bonds”.

On top of that it imposed a £4m penalty on Mark Owen, Keydata’s former sales director, and a £200,000 fine on its former compliance officer Peter Johnson.

It also said it intended to bar the three men from any future roles in financial services. But Mr Ford came out fighting, claiming he will shortly file a claim against the FCA and PwC seeking £650m in damages as well as the scrapping of the fine.

“The FSA set out deliberately to destroy Keydata and did so without any proper reason,” Mr Ford claimed. “In order to close the company down without notice they enlisted the assistance of PwC to report that the company was insolvent, which they did without even bothering to speak to Keydata’s management – and which finding was wholly wrong.

“I invite all former Keydata investors, their financial advisers and the media to come to the High Court and enjoy the spectacle of a failed regulator and their dodgy accountants being exposed for what they are.”

PwC said it did not believe Mr Ford had any grounds to bring an action.

The fine was the biggest ever imposed on an individual by the City watchdog. It was imposed, the regulator said, because “in the FCA’s opinion Mr Ford, Mr Owen and Mr Johnson failed to act with integrity and also misled the then Financial Services Authority on a number of occasions in relation to the performance of the investment products”.

The “death bonds” at the heart of the issue were policies offered by two companies in Luxembourg, known as SLS and Lifemark. They were based on second-hand life insurance policies bought from US citizens with an expected short lifespan.

The bonds had their own problems, as investors were forced to pay more premiums because many of those whose lives were insured lived longer than expected.

But the regulator tackled and eventually closed Keydata because of a tax situation. “The products were sold as eligible for Isa status, but they were not, in fact, eligible,” the FCA said.

It also alleged that Mr Ford had “deliberately concealed the problems with the portfolio underlying these products from investors, [financial advisers] and the then FSA.”

Its Decision Notices on the three set out its view that Mr Ford and trusts set up for the benefit of his family received £72.4m in fees and commissions on sales of the Lifemark products and that Mr Owen received commissions of £2.5m.

“In the FCA’s opinion, Mr Owen’s commissions were not properly disclosed, nor was Mr Ford’s conflict arising from the payment of these fees and commissions adequately managed,” it said.

Mr Ford said the basis of his claim was that the FCA brought down Keydata “as a blatant attempt to prove it could be effective after its disastrous handling of bank regulation in the lead-up to the 2008-09 financial crisis”.

He claimed the FSA’s intervention caused “over £350m of UK consumer detriment”.

The three men fined have referred their Decision Notices to the Upper Tribunal where they and the FCA will each present their case.