Up to 1,500 investors in Keydata-style life settlement-backed products have been told they will receive a fraction of their expected return because the bonds failed to get regulatory approval.
UK investors in ARM Asset Backed Securities, a Luxembourg-based special purpose vehicle, have received letters stating regulatory approval for their investments has not been given, the Financial Times reports.
They are being offered returns as low as 0.14% on their £36m investment pool on bonds which promised up to 9% per year.
ARM has been trying to gain authorisation from the Luxembourg regulator (CSSF) since last July but continued to sell the products without approval.
Investors‘ money has been held in holding accounts accruing interest of 0.14% until the bonds could be bought.
Its situation is similar to that of failed investment firm Keydata.
Also Luxembourg-based, the Lifemark-backed bonds sold in the UK by Keydata, and the ARM bonds, were both due to derive income from maturing life insurance policies bought from older US citizens.
Also like Keydata, ARM's capital growth and income bonds were marketed to pension and Isa investors as an "exciting" asset class whose returns were not exposed stockmarket risk.
Keydata continued to sell Isa products to investors despite failing to get approval to list its bonds with Isa status on the Luxembourg stock exchange. Similarly bonds for ARM's Luxembourg issue were sold to UK investors while the bond issue remained unapproved, with sales only suspended in May.
As of June 30, ARM, which has a $1bn securitisation programme listed on the Irish stock exchange, had a portfolio maturity value of $419m.
In its letter to investors, ARM says the issue application was still with the CSSF and it was now attempting to get the bonds issued in Ireland. They have been offered a full refund if they do not wish to wait for the Irish issue.
It was unable to provide investors "with any certain timetable for the finalisation of this process".
ARM's bonds were sold by 28 IFA firms in the UK, including Rockingham Retirement which had its permission to give investment advice withdrawn by the FSA in August this year.
ARM is advising investors to seek independent financial advice about their options.
Lifemark ran bonds backing Keydata plans owned by 23,000 customers who invested £350m, and more than £100m was invested by Keydata investors in Secure Income Bonds (SIBs) 1, 2 and 3, before the FSA placed the firm in administration in June 2009 on grounds of insolvency.
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