The planned investor-led judicial review into an Arch Cru compensation package will run separately to an action backed by IFAs, after concerns the adviser group has a conflict of interest with investors and insufficient funds to fight the case.
Investors' lawyers will next week lodge court proceedings requesting a review into the fairness of a £54m payment package put forward by the three main companies charged with the management of the funds and the safety of deposits into them - Capita, HSBC and BNY Mellon.
Adviser firm Coull Money Ltd has lodged a separate challenge backed by about six other IFAs who recommended clients invest in Arch Cru and lobby group Justice in Financial Services (JFS).
Talks had been underway between the two groups to support the other party's action. However these have now broken down.
Gareth Fatchett, partner at law firm Regulatory Legal, which acts on behalf of about 2,700 Arch Cru investors, said in an email: "We simply do not believe that Coull Money Ltd and the company used by Justice in Financial Services (Ignacity Limited) are able to fund an action."
He also raised concerns the IFA action was at odds with the aims of investors.
"If you read the extract from the JFS statement of grounds, you will see that the claimant (Coull Money) is solely concerned with protecting itself against negligence claims from investors.
"It makes no mention of seeking to improve the position of investors. We cannot properly advise investors to support this position," Fatchett said.
According to the FSA register, Coull Money Ltd was no longer authorised as at 3 November.
Any claims made against the closed firm would revert to the industry-funded financial services compensation scheme (FSCS).
The FSCS tries to recover compensation costs where it can from the sell-off of a closed firm's assets during the liquidation process, in order to reimburse levypayers.
Accounts for Coull Money on Companies House to December 2009 show a balance sheet of £782 total net assets. Accounts for 2010 are overdue.
IFAonline understands Coull has transferred Coull Money's assets in the form of clients to her new employer, RE Hutt, where the FSA register shows Joanna Coull became an approved person on 8 June this year.
Liability for any compensation claims remains with Coull Money, according to Hutt.
A spokesperson for Justice in Financial Services confirmed Coull's firm has no staff and her clients have moved with her to Hutt.
He said: "We chose Coull Money as the lead IFA because it doesn't have the worries of some of the other firms.
"It doesn't have any staff worries and the clients have been moved to another IFA [RE Hutt], but the liability is with Coull Money."
Legal fees incurred by Coull Money during the judicial review will not be passed onto the FSCS.
A spokesperson for JFS said in an email: "We did not ask Mr Fatchett and the RL team for money. All we did offer was to talk to members of the Steering Committee if they were unable to proceed.
"I am more than clearly on the record in making it explicit in the strongest possible language that JFS will never deal with Fatchett."
He accused Fatchett of having "misrepresented entirely the breadth of the attack" mounted by the group.
Many IFAs who sold Arch Cru products fear investors frustrated by the payment scheme - which the FSA claims will return 70% of their investment but critics argue will provide just 50% or less - will instead make a Financial Ombudsman Service (FOS) claim against their adviser.
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