Arc Capital & Income (ACI) has become the third UK provider of ‘capital guaranteed’ structured products to go into administration in the space of two weeks, following a Financial Services Authority (FSA) investigation into the marketing of plans backed by the bankrupt US bank Lehman Brothers.
Of the 10,000 private investors with ACI, approximately 250 had a total of £5.75m invested in the firm’s three Lehman-backed products: Arc Fixed Income Plan 6, Arc Stepped Kick Out Plan 5, and Arc Bull and Bear Enhanced Investment Plan 3. These investors may now claim compensation of up to £48,000 each from the Financial Services Compensation Scheme (FSCS), after ACI was today formally declared “in default” by the FSA.
Investors in ACI’s other structured products have been told by the administrators, Carter Backer Winter LLP, that their money is safe and their plans will be taken over by a new fund manager. ACI began talks with an unnamed firm to hand over the running of its business last week, and discussions continued over the weekend.
However, on Monday, the administrators said they would be seeking other bids. “We’re hoping it will only be days, and we hope to be able to get payments made to non-Lehman’s planholders in the normal way,” said John Alexander, head of Carter Backer Winter’s Corporate Recovery and Insolvency department. “We’re keeping all key staff on at ACI, to continue managing the plans.”
ACI was forced into administration after the FSA asked it to assess its financial position in relation to potential legal claims by investors who bought its Lehman-backed structured products. An FSA review of ACI’s “systems and controls and marketing literature” found that claims were likely – leading ACI to calculate that, if the claims were upheld, it would become insolvent.
ACI’s announcement comes just 12 days after NDF Administration and Defined Returns Limited – two other providers of Lehman-backed structured products – were forced into administration for similar reasons. Up to 3,700 investors in their products are now pursuing compensation payments through the FSCS.
Meteor – the only other provider to structure capital-guaranteed plans with Lehman Brothers as counterparty – yesterday said that it had been involved in the FSA investigation since July, but that no problems had been uncovered. “The FSA visited the company as part of their extensive review of structured products,” a spokesman said. “This visit included an assessment of Meteor’s sales and marketing procedures including product literature. Following this assessment, the FSA has not raised any concerns with Meteor.”
All investors in ACI’s products will be contacted shortly by the administrators, but do not need to take any action at this stage. Investors who have pre-paid into ACI’s three new plans - Arc Protected FTSE Growth Plan, Arc 17.25 per cent Kick-Out Plan, and Arc Fixed Income Plan 16 – will receive refunds from the administrators. Further information is available at www.cbw.co.uk/arc.html or on 0844 880 6511.
The FSA will publish the full findings of its investigation into the structured products industry later this week.
