What do terminally ill US pensioners, Amazon rainforest carbon credits, the British Virgin Islands, the mysterious death of a Malaysia-based UK fraudster, and the near-collapse of the Norwich & Peterborough Building Society all have in common? The answer is Keydata.
Keydata, founded by Stewart Ford, has been personally fined by the Financial Conduct Authority a record £75million fine, after the collapse of an investment firm left 37,000 investors with losses of up to £475million. The fine is nearly twenty times the previous highest fine against an individual by the FCA. The FCA also fined the firm’s sales director £4million and the company’s compliance officer a further £200,000, and banned the trio from working in financial services again.
Ford founded Keydata and, with this, he created a £2.8billion financial empire selling ‘death bonds’. Through a complex web of companies and trusts in the British Virgin Islands, Ford earned £72.4million in fees out of the £373million invested in Keydata’s ‘Lifemark’ funds. Along with an additional £22.7million paid to Keydata itself, the scale of the fees seriously undermined the chances of investors seeing the returns promised, according to the FCA. As a direct result of this, the level of the fine on Ford is equal to the extraordinary fees and commissions he allegedly took from investors who thought they were buying relatively low-risk bonds that would pay an income in retirement and protect their capital.
As part of the accusations against Ford, the FCA say that he acted “recklessly” and with “clear and acute” conflicts of interest. The investigation began under the FCA’s predecessor body, the Financial Services Authority. It is also alleged that Keydata’s promotions were grossly misleading and its products wholly inadequate, with investors being told their money was in tax-free ISAs, when in fact it was not.
In a press release, the FCA said, “Mr Ford deliberately concealed the problems with the portfolio underlying these products from investors, IFAs and the then FSA.” It continued, “The FCA further considers that the individuals deliberately misled the FCA by making false representations to the FCA in compelled interviews about the performance of the investment products.”
Ford denies the FCA’s allegations, and in a response statement he said, “The FSA set out deliberately to destroy Keydata and did so without any proper reason. In order to close the company down without notice they enlisted the assistance of PwC to report that the company was insolvent which they did without even bothering to speak to Keydata’s management – and which finding was wholly wrong.” He also went on to say, “The FSA and PwC collaborated and conspired to carry out a regulatory hatchet job on Keydata and on me.” He further said the FCA had been “over-aggressive” in its investigations into the firm, as the regulator was, at the time, stung by accusations over its performance during the financial crisis. He added that the FCA had blocked his efforts to put together a financial rescue package for Keydata. In 2011, the Serious Fraud Office closed its investigation into Keydata after it found insufficient evidence to prosecute.
Mr Ford is currently appealing to the High Court against the fine, and countersuing the FCA and auditors PwC for £700million.
It is alleged that savers were given assurances that banking group HSBC oversaw trading in the insurance contracts, which the bank strenuously denies. In reality, £103million from investors ended up in the hands of businessman David Elias.
Elias became a fugitive from justice after eluding a warrant for his arrest in 2001. All of the £103million has since disappeared. Elias died in May 2009, aged 54, in the Malaysian tax haven of Labuan, and was at the time involved in a string of other businesses, including promoting carbon credits in the Amazon. However, investigators have never been able to confirm his death, and there are suspicions he may still be alive and on the run somewhere in the Far East.
Keydata’s collapse also prompted the demise of the 150-year-old Norwich & Peterborough Building Society in 2011. N&P’s advisers had sold Keydata policies to 3,200 customers, and after regulators ordered the Society to pay a fine and compensation totalling £52.4million, it was forced into an emergency merger with the Yorkshire Building Society.
