Labour MP Russell Brown has accused the government of trying to "sweep the failures of the Financial Services Authority (FSA) under the carpet", after it refused a parliamentary debate into the regulatory oversight of those managing the failed Arch cru fund range.
The Dumfries and Galloway MP wrote to Chancellor George Osborne calling on the government to probe the FSA's role in the failure of the funds.
But an investigation was ruled out earlier this month when the Leader of the House, George Young MP, refused a Commons debate into the issue.
The decision will lead to "exactly the same thing" happening again, said Brown - effectively an Arch cru Mark II.
About £400m was invested in the fund range from 2006 until March 2009 when the FSA forced its suspension, after it became clear Arch would not be able to meet the demand for redemptions from investors seeking to sell out of their investments.
The role of the FSA in authorising the funds is under scrutiny, and Brown wants the government to investigate whether the regulator did enough to protect investors.
"These funds were misrepresented and mismanaged, but the FSA gave them a stamp of approval which meant people assumed everything had been checked out," he said in a statement.
"People were misled about what they were buying into and the blame lies with the FSA. The government needs to wake up to the problem here and learn lessons; otherwise exactly the same thing will happen again."
The FSA has proposed a £54m compensation package, which may eventually return up to 70% of investors' funds, but the offer is conditional upon investors dropping threats of legal action.
Brown has labelled the deal "a sham" and an attempt to "buy-off" investors.
"Investors right across the country are demanding answers, but rather than show some leadership and investigate the FSA's failures, the government is trying to sweep this under the carpet," Brown said.
"They have refused to even allow a debate in Parliament and are passing the buck."
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