A group of investors is preparing to pursue self-invested personal pension (SIPP) provider Stadia Trustees for hundreds of thousands of pounds via the Financial Ombudsman Service (FOS) for what it claims was its failure to carry out proper due diligence on an unregulated investment they put their pension money into.
Stadia disputes the claim and argues it undertook due diligence into the scheme "at a far higher level than other SIPP providers".
The six investors all invested through Stadia in Armadillo Energy, an oil exploration company which buys oil leases in Oklahoma in the US.
They claim they were promised returns of 30% by former adviser John Patrick Robertson, then of firm Global Resource Enterprises, but they say returns have not materialised.
The investors, along with two others, are suing Robertson in a separate case on the grounds of professional negligence and breach of the Financial Services and Markets Act for promoting unregulated collective investment schemes while not being authorised.
Armadillo is currently under investigation by US agencies the Federal Bureau of Investigation (FBI) and the Inland Revenue Service (IRS).
The investors - who are being represented by law firm Regulatory Legal and who claim they were told the scheme was low risk by Robertson - argue Stadia Trustees did not dig deep enough into Armadillo to see if it was a suitable SIPP investment.
To prove this point they will rely on recent finalised guidance from the Financial Conduct Authority (FCA) which stated that SIPP providers involved with unregulated collective investment schemes (UCIS) must have "enhanced procedures" for dealing with them.
This includes undertaking "appropriate" due diligence on each UCIS, which must be kept under regular review.
They must also have key performance indicators and benchmarks linked to the sale of UCIS to monitor the business they are conducting, and ensure that any third party due diligence they rely on has been independently produced and verified.
Stadia director Tony Hales said the SIPP provider carried out extensive research on Armadillo, including visiting the Oklahoma oil fields, and "was not expected to carry out forensic due diligence" on the scheme.
"We invited the FBI, the IRS and the City of London Police to come and look at our files on Armadillo. They all stated clearly that Stadia could not have done anything more," he said.
Hales said Stadia has now done a deal with Armadillo to transfer all investors' rights in the Oklahoma oil field into a trust, which will receive an income directly from the company that extracts the oil.
The SIPP provider will then distribute the income on a fractional basis to all investors, not just those that invested through Stadia.
"We have done everything we can to help investors," said Hales.
Robertson could not be reached for comment.
What made financial headlines over the weekend?
Caring for children and elderly relatives
Similar to June 2007
Square Mile’s series of informal interviews
Fine reduced to £60,000