One of the five firms looking to obtain compensation for investors who lost money in the break-up of investment fund Woodford Equity Income is set to launch a multi-million pound class action in the courts by the end of the year.
The Mail on Sunday understands that litigation specialist Harcus Parker is likely to be the first to press the ‘go’ button, with a claim against Link – the fund’s ‘authorised corporate director’ (ACD). It is understood to be ‘further down the track’ than rivals RGL Management, Nelsons, Slater and Gordon and Leigh Day.
The view of Harcus is that Link failed in its duties as ACD to safeguard the interests of the fund’s 300,000 investors, leading to the abrupt closure of the £3.5billion fund in June last year when it was unable to meet a multimillion pound redemption request from a key investor.
Looking for justice: Many investors in Neil Woodford’s fund have been left with losses of up to 50 per cent
Manager Neil Woodford was subsequently sacked by Link, the fund broken up and a majority of the assets disposed of with money being returned to investors. But many investors have been left with losses of up to 50 per cent.
Harcus maintains Link did not ensure there was sufficient liquidity in the fund to meet investor redemptions – resulting in its sudden closure. Also, it says Link did not verify the valuation of some of the fund’s unquoted assets which were subsequently sold for a pittance as Woodford Equity Income was broken up.
Finally, Link is accused of failing to make sure Neil Woodford ran the fund in accordance with its objectives – namely to provide investors with a mix of dividends and capital return from a portfolio of established UK companies. Instead, the fund was heavily invested in unquoted companies.
On Friday, Harcus confirmed it has the necessary funding in place to launch its claim, has obtained favourable opinion from a leading Queen’s Counsel on the merits of its claim, and has set out its argument to Link in correspondence – a document The Mail on Sunday has seen.
It added: ‘The claim is going ahead and we expect to file soon on behalf of several thousand clients.’ Some 15,000 investors have expressed an interest in supporting the claim, of which 3,000 have gone on to become Harcus clients. Their numbers will be boosted when Harcus goes ahead with the claim – aggrieved investors can join it up until a deadline set by the court (woodfordclaim.com). The action is being run on a no-win, no-fee basis.
Harcus’s move will be welcomed by Woodford investors because the litigation expert has past history in mounting successful actions. It pursued Link’s predecessor Capita Financial Managers in the courts over its role in the collapse of the Arch Cru funds – and is believed to have forced Capita into agreeing an out-of-court settlement in 2015.
Interestingly, the Queen’s Counsel opinion sought on Link is the same as the lead counsel used in Arch Cru – Nick Vineall QC. Capita’s duties at Arch Cru were broadly the same as those for Link on Woodford Equity Income.
Investors will need to be patient. Once launched, the class action would take at least 18 months to get to trial. Any judgment either way could then take between two and three months to be made, so if Harcus is successful, compensation is unlikely to be paid before the end of 2022. Harcus’s intervention aside, there is still the possibility of regulatory intervention in the Woodford debacle. The Financial Conduct Authority has been looking into the circumstances surrounding the closing of the high profile fund for the past 17 months – and continues to do so. According to Peter Sleep, a fund manager with Seven Investment Management, investors who are hoping for compensation through FCA intervention will probably need to have the ‘patience of a saint’.
He says that regulatory action against Capita Financial Managers (now Link) for its role in the liquidation of the Connaught Income Fund took five years to bubble to the surface.
The result was a £66million payment to investors (from Capita) who lost money in the failed fund – plus a public censuring for Capita.
There are similarities between Connaught Income and Woodford Equity Income – in terms of the failure of the authorised corporate director (Capita in Connaught’s case, Link’s in Woodford’s) to adequately monitor the fund.
But as Sleep says: ‘Nothing is ever exactly the same, but there may be other issues the FCA uncovers with Woodford Equity Income. The wheels of justice turn slowly and I can only imagine that Covid is throwing sand in those wheels today.’
On Friday, the FCA said the investigation into the suspension of Woodford Equity Income was a ‘priority matter’. It added: ‘There’s a strong team working on it full time and we’re looking to complete it as soon as we possibly can.’ It confirmed Link was part of its work. Although Harcus’s focus is on Link, other litigation companies have targeted wealth manager Hargreaves Lansdown which, up until the day Woodford Equity Income was closed, had promoted the fund as a ‘best buy’ – in the process generating millions of pounds of revenue for itself. This is despite having concerns over the increasingly illiquid nature of the fund.
CASE STANDS ‘HIGH CHANCE OF SUCCESS’
Alan Miller, chief investment officer of asset manager SCM Direct, has closely followed the debacle over funds managed by Neil Woodford, left.
Indeed, he was one of the first to predict that many of the investments in the Woodford Equity Income fund were grossly overvalued and near worthless.
He raised his concerns directly with the Financial Conduct Authority – and has been proved right. He says any class actions stand ‘a very high chance of success’ – adding: ‘I think there will be substantial claims against both Hargreaves Lansdown and Link, ironically not against Mr Woodford or his business Woodford Investment Management.’
There is also the possibility of an institutional claim being launched against Link – backed by pension funds which invested in Woodford Equity Income.
Harcus Parker is looking into this, but it is tricky because of the reluctance of many institutional investors to get involved in litigation which they consider ‘messy and vulgar’.
One expert believes Hargreaves Lansdown should join such a claim so that investors in its own-branded managed funds – some of which were heavily invested in Woodford – have a chance to recover a slice of their losses.
On Friday, Link and Hargreaves Lansdown were both invited to comment on the prospect of litigation.
They declined the opportunity.
THE FOUR OTHER FIRMS TAKING LEGAL ACTION
RGL MANAGEMENT: RGL’s main target is Hargreaves Lansdown although it is still looking ‘very seriously at adding Link to the claim’. Like Harcus, it has sought opinion from Queen’s Counsel on the merits of any claim and the response has been ‘excellent’.
On Friday, James Hayward, RGL chief executive, said: ‘We have over 1,000 claimants and this is before a formal marketing campaign has begun. In all reality, we won’t issue a claim before next year.’
Hayward admitted his company might not be the first to issue a claim, but he pointed to the fact that ‘nobody had beaten them’ to mounting a class action against Yorkshire and Clydesdale banks for their mis-selling of business loans in the 2000s. ‘We have the expertise and the gravitas,’ he added. rglmanagement.com/woodford-litigation
LEIGH DAY: Like Harcus Parker, Leigh Day believes a case against Link presents the best way forward. It told The Mail on Sunday it is in the ‘final stage of preparation’ ahead of launching its case. Any action would be based on a no-win, no-fee basis with fees capped at 30 per cent of any compensation received.
Kamran Vojdani, a solicitor in the consumer law team at Leigh Day, said: ‘The time to get the case ready reflects the size, complexity and developing nature of this matter. In addition, we want to make sure everything is in place to take the claim through trial so we don’t have to disappoint clients later on.’
He added that it was ‘separately considering potential claims against Hargreaves Lansdown’. consumerlawclaims.leighday. co.uk
NELSONS: This firm is looking to issue claims against both Link and Hargreaves Lansdown – as well as advising some investors on additional claims against their independent financial advisers who recommended the Woodford fund to them. On Friday, partner Cathryn Selby said: ‘We have been gathering evidence for the claims that are proceeding – as well as investigating new potential claims as people affected continue to come forward.
‘We are in the process of finalising the claims so anyone looking to pursue a claim should act quickly as we anticipate issuing formal letters of claim before the end of the year.’ nelsonslaw.co.uk/ woodford-fund-claim
SLATER AND GORDON: It is following RGL in pursuing Hargreaves Lansdown. On Friday. Gareth Pope, Slater and Gordon’s principal lawyer, said: ‘We consider that investors have a viable claim against Hargreaves Lansdown and we are committed to holding them accountable for the losses investors have suffered.
‘Slater and Gordon has formed a team of barristers and expert advisers and is in the process of creating a group action against Hargreaves Lansdown to enable all investors to reclaim their investment plus other losses suffered.’ slatergordon.co.uk