Keydata cannot be sold as a whole as potential issues have come to light including the fact some 5,500 investors in seven Secure Income plans will be told their assets have been 'misappropriated'.
Administrators PwC said money invested through SLS Capital including £103m in seven secure income products is at risk as information received over the weekend suggests the assets have been liquidiated and may have been misappropriated. PwC is now working with the authorities to trace the funds.
No income payments or redemptions on the seven SLS products will be possible at this time. Products affected are: Keydata Secure Income Bond Growth (Issue 1); Keydata Secure Income Bond-Income(Issue 1); Keydata Secure Income Bond 2-Growth; Keydata Secure Income Bond 2-Income; Keydata Secure Income Bond 2-Quarterly Income (USD); Keydata Secure Income Bond 3-Growth; Keydata Secure Income Bond 3-Income.
PwC said over the last few days it has been aware income has not been paid on these products by SLS since October 2008. No investor has so far suffered as the gap was filled by KIS's own corporate funds.
The £2m invested in property vehicles through Hometrak has also been impacted and PwC is seeking confirmation on the status of the underlying assets.
For the £349m invested with through KIS products with Lifemark, PwC has received confirmation of the existence of the underlying assets. However, redemptions on the four affected products may have been dealt with in an irregular fashion. The products affected are Keydata Defined Icnome plan issues 1-8, Keydata Secure Income Plan issues 1-12 and 14, Keydata Secure Income Bond 4 and Keydata Defined Income Plan special additions. No redemptions will be possible on these products also with around 23,000 investors impacted.
The KIS products backed by blue chip financial products are unaffected by PwC's concerns regarding underlying assets or historic processing of redemptions. Some 80 investors are affected with £2m invested.
The administrator has also reassured third party clients with £2,206m in plans where Keydata provides plan management that their investments are safe and income payments and other processing on these accounts is now fully operational.
PwC says it is continuing to work closely with the FSA and is also in contact with the FSCS. If there is compensation to pay, the FSCS can step in as quickly as possible.
The Administrator says it is aware of the uncertainty and hardship caused due to the suspension of income payments. It says it has agreed with HMRC to deduct income tax at the basic rate from income payements and investors will receive their income net of tax. Processing of tax deductions will prove an administrative challenge in the short term and it is likely there will be further delays before payments can be made, PwC adds.
Dan Schwarzmann, joint Administrator and partner of PricewaterhouseCoopers LLP says:
"We are very disappointed not to have been able to effect a sale of the business as a going concern as this would have provided some much needed stability for investors, employees and creditors.
"We understand how worrying this new information must be for investors but would like to reassure all of them that we very much have their interests at the forefront of our minds as we seek to fully understand all the issues. We are working very hard in conjunction with the FSA and other authorities to obtain information regarding the whereabouts of the underlying funds in SLS.
"I would also reiterate my earlier confirmation regarding funds held by KIS. The funds, which totalled £70m at the date of our appointment, are all held in secure segregated client bank accounts and are not affected by the insolvency of KIS.
"I would encourage investors to continue to visit the website at www.pwc.co.uk/KIS where we will update new information as soon as we can."
Colin Jackson, director at Baronworth Investment Services, says: "The fact Keydata will not now be sold as a going concern has come as a compete surprise and is all very worrying.
"Ultimately my clients will not be affected financially because they will be able to claim any compensation they are entitled to from the FSCS if the administrators are not able to retrieve it from Keydata.
"What is even more worrying is that this was going on for so long. If Keydata was making up the difference in income for investors then either they did not realise there was a problem with SLS paying the income and were making up the shortfall or they were aware and kept it quiet. It does raise the question why this was not detected for nearly seven months.
"We are now hoping for a definite announcement explaining what will happen to investor's money as we will need to know as soon as possible whether we need to start preparing a claim for compensation from the FSCS."
The FSA says it is now is now working closely with the administrators to reach a solution for investors as fast as possible and is also in discussions with the Serious Fraud Office about the potentially missing assets underlying some of these products.
It says concerns only came to light during PwC's detailed 'forensic examination' of Keydata's business and it remains a complex situation.
However, Harry Katz, principle at Norwest Consultants believes the regulator should have spotted the warning signs a long time ago.
"I'm looking at this and thinking it's suicidal, how does this affect my clients, there are 5,500 clients whose investments have gone missing, which ones are they?
"What do they mean by ‘missing'? Who has been involved here Bernard Madoff?!
"If the average investment is £10k, and 5,500 investments are missing, we are talking about £55,000,000. How can the FSA allow a regulated investment company to have this missing?
"Doesn't the regulator look at the returns and details that the providers are sending to them? These people have all our money and what is the regulator doing? They should have seen this as a warning sign. If the funds have gone missing, when did they go missing, why did they go missing - where is the regulation?"
If it emerges that Keydata has caused customers to suffer a financial loss and cannot meet its liabilities, the Financial Services Compensation Scheme (FSCS) may be able to help.
Have you got views on the demise of Keydata and the impact on your clients?
contact: [email protected]
No preferred charging model
To 1,552 families and businesses
HL and Liberty SIPP slowest
Lifetime and annual allowances