Arch Financial Products chief executive Robin Farrell has accused the funds' new manager of giving misleading statements in court, while protesting his own previously disputed honesty.
Farrell attacked Spearpoint chief executive John Davey's witness statement, heard as part of SPL Private finance's £150m lawsuit against Arch, at the High Court on Thursday, saying it was "highly misleading in key points".
He dismissed Davey's argument that Lonscale was a nil value, loss-making investment, saying the direct comparison with other investments in the bonds and cash space that were performing better, was an "extraordinary suggestion".
He also hinted at conflicts of interest, alleging that Davey would have seen a performance fee incentive in writing down the business.
SPL, the Guernsey cells' current board, is suing Arch FP for gross negligence in its role as investment manager of the failed Arch Cru funds between 2007 and 2008.
The board is also suing Farrell for dishonestly assisting Arch FP in breaches of fiduciary duty in relation to its investment in Lonscale, holding vehicle of student accommodation group Club Easy.
Under Davey, whose firm took over the management of the funds in 2009, the Arch Cru funds sold their 75% stake in Lonscale to co-owner Foundations Capital for £10.6m in March 2010.
Davey had branded the business ‘valueless' and said it was not worth the investment needed to turn it around.
But Farrell alleged the business was deliberately written off which produced performance fees for Spearpoint but caused losses for the investors.
He claimed the company was sold at an undervalued price and its book value would have been more like £17m to £20m had it not been sold so soon after the financial crisis.
He told the court: "Common sense will tell us that if something can be sold at £10.6m after the worst financial crisis in living memory it would have probably have been worth more in 2007.
"They didn't get a valuation for it. The defendants have been criticised for not doing enough due diligence but, hypocritically, the claimants and Spearpoint have done far less."
He added: "There was a strange disposal structure, no valuation [...] and a rather strange write off of debt in the space of a month.
"The performance fees were a very large multiple of the management fees for an investment ‘valued at nil'.
"In conclusion on Mr Davey's [witness statement], there are examples of highly misleading descriptions on key points in relation to the case."
Meanwhile Farrell fought back against attempts to discredit his honesty, saying Arch had not deliberately misled the courts or the Financial Services Authority (FSA) in its investigation into the firm as previously alleged.
The FSA had issued decision notices against Farrell and Arch FP's compliance director Robert Addison in December 2012, setting out plans to fine them £650,000 and £200,000 respectively. But the pair referred the notices to the Upper Tribunal where they are due to be heard in May.
Farrell told the court: "The FSA decision notices have no effect [on my credibility] they are being challenged in the Upper Tribunal.
"I have not been subject to any judicial process whatsoever. Most importantly, the FSA make no allegations of dishonesty [against me]."
Instead, Farrell insisted in court that SPL had no evidence against him or Arch. He said that most points supporting SPL's claim rest on "analysis of language and terms used rather than evidence".
In new material submitted to the court as part of their enhanced closing statement, Farrell and Addison said: "The claimants have failed to adduce any clear supporting contemporaneous evidence. Their allegations are reliant on inference, characterisation and circumstances where there are for more probable innocent inferences to be drawn."
Farrell said terms such as ‘joint venture' and ‘originator' used in their own evidence were deliberately dissected by the claimants to be able to allege inconsistencies.
The trial is scheduled to conclude on Thursday when the claimants will be given the chance to respond to Arch's closing statement.
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