Investors in failed structured product provider NDF Administration (NDFA) are planning a legal challenge to an FSCS decision not to compensate their loss.
The FSCS told the 2,000 investors in NDFA's Lehman Brothers-backed Capital-at-Risk products in September they would not automatically qualify for compensation.
It ruled the marketing materials from NDFA provided "adequate and appropriate warnings" that there was a risk to investors' capital if the counterparty (Lehmans) failed.
However, investors disagree marketing materials explained the counterparty risk and around 150 people are now seeking legal advice from Regulatory Legal to have the ruling overturned.
Investors argue Lehmans, which filed for bankruptcy in September 2008, was not named in NDFA sales brochures. They say the literature they relied on is near-identical to brochures for the provider's ‘Capital Secure' products, which the FSCS has agreed to compensate.
Last year, the FSCS said it would pay out to the 1,700 investors in "Capital Secure" plans backed by collapsed firms NDFA, Arc and Defined Returns Limited.
Peter Howard, an NDFA 'Capital at Risk' investor who is leading the action against the FSCS, says the ruling is out of sync with an FSA review into financial promotions.
"The FSA goes into great detail about what literature from NDFA must contain, which includes the counterparty name.
"NDFA literature did not name the counterparty. But the FSCS has decided to completely ignore what the FSA asked for in its report and instead to separate one company into two businesses. It is ridiculous."
Law firm Regulatory Legal, which would pursue a case of civil liability against NDFA for the 150 investors, says it will first reapply for compensation from the FSCS.
If that fails the law firm will launch a judicial review of the scheme's decision making.
NDF and DRL went into administration on 14 October 2009, followed by Arc on 26 October.
Structured product failings have already cost the industry £22m in FSCS levies, in addition to a £58m levy for Keydata, Pacific Continental and Square Mile compensation claims.
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