£10m charity to aid victims of split-cap scandal

Daniel Godfrey, the director-general of the Association of Investment Trusts (AITC), spiked the guns of the Financial Services Authority (FSA) by announcing plans to launch a £10m industry-wide charity to help victims of the split-capital investment trust scandal.

He told a AITC conference in London that he had already raised £1m to fund the as-yet unnamed charity, which will aim to alleviate hardship even if an investor has lost money without taking professional advice.

Split-capital trusts split their shares into two classes. The holders of one class receive all the dividend income from the trusts' investments, while holders of the other class benefit from those investments' capital growth. They began in the Eighties, when there was a substantial difference between capital gains and income taxes, but many of these trusts have been brought down by high borrowings and compounding the problem by investing in one another.

Mr Godfrey said: "I am looking to the trusts that have made money in the bull market to offer relief to those who have suffered. It's important that we are able to show that we are prepared to act to help those who may otherwise have to wait years for compensation through the normal legal process." He added that the money should be paid without any implication of fault or blame.

John Tiner, the FSA's director in charge of consumer, investment and insurance matters, followed Mr Godfrey on to the podium and unwittingly still called on investment trusts to compensate investors. He was greeted by a slow but steady stream of conference delegates walking out on him.

Mr Tiner said: "My postbag suggests the term 'split cap' has now become a byword for investors who feel – rightly or wrongly – that they have been conned out of their hard-earned savings. The saga of the splits sector over the past couple of years has been a sorry one, and many investors have lost money. As a result, the investment trust industry has lost the confidence of those it is there to serve."

The FSA's chairman, Sir Howard Davies, was accused by the Treasury Select Committee of "sleeping on the job" over the supervision of split-capital trusts, but Mr Tiner claimed that it was now the FSA's largest current investigation in terms of the resources being devoted to it and he disclosed that at least 10 trusts were under investigation for alleged collusion.

Mr Tiner reported that more than 2,000 investors had now complained to the Financial Ombudsman Service, and between 50 and 100 cases are notified each week.