At one level, the Arch Cru affair is a colourful tale of decrepit oil tankers, alleged “secret profits” and a senior figure who believed God would smooth over any resultant problems, but now runs a fish and chip shop.

Yet with around 10,000 small investors, many of whom poured a substantial slice of their life savings into the Arch Cru funds, being left out of pocket, the affair takes on a far darker tone.

The range of Arch Cru funds was launched in 2006 by Arch Financial Products, headed by Robin Farrell, previously global head of alternative investments at Dresdner Kleinwort Wasserstein, and Cru Investment Management, which would market the funds to independent financial advisers.

One fund, the Arch Cru Investment Portfolio, was placed in the “cautious managed” category of the UK Investment Management Association’s classification system, although the IMA apparently later told Citywire, a news service, that the word “cautious” should “not be taken literally”.

The funds are believed to have raised around £422m ($646m) via 900 IFAs. This money was then invested in a series of 24 “cells” listed on the Channel Islands Stock Exchange, designed to invest in asset classes such as private equity, private finance, real estate and “sustainable” opportunities. With a handful of institutions investing directly, the total assets of the cells were believed to be around £500m.

The published performance figures for the Arch Cru funds were so good that two of them topped their IMA sectors in 2008.

Jon Maguire, the chief executive of Cru and son of a Baptist minister, who had by then started a fresh investment venture in Malawi, reportedly told staff in December 2008: “God told me two years ago that if I would look after Africa he would look after Cru.”

Yet the Almighty appeared to let him down in March 2009 when the entire Arch Cru range was suspended due to a lack of liquidity to deal with redemptions, a problem Arch blamed on “extreme market conditions”. The suspension was never lifted.

Capita, the authorised corporate director of the UK funds, appointed a fresh investment manager to the Guernsey cells, Spearpoint, and a new board, headed by Hugh Aldous, chairman of Capita Sinclair Henderson, a Capita subsidiary, to recover as much value as possible for the investors.

A High Court writ lodged last week by the board claims Arch breached its mandate and its duty to exercise fundamental care of assets, as well as failing to account for “substantial secret profits”. It is suing Arch for £150m.

According to the writ, Arch invested $167m to finance the conversion of “seven old ships of very poor quality”. The oil tankers, which were to be converted into double-hulled vessels, increasing their value, were owned by Salamis Shipyards, a Greek company, which was to carry out the work.

The writ alleges that a bankruptcy petition was outstanding against Salamis at the time of the investment, that it had not filed its accounts since 2002 and that Nicolas Koros, the owner, had previously been involved in at least three major shipping ventures that had failed, leaving banks and other investors with “huge losses”.

The investment resulted in losses of $162m, according to the writ, while Arch made “secret profits” of £1.7m, the writ alleges.

Arch is also accused of making “secret profits” of £3m from a £26m investment in Lonscale, a “heavily indebted and loss-making” property company, which resulted in losses of more than £20m.

A further £5m is alleged to have been lost via an investment in the shares of Arch UK and a swap transaction based on the value of the shares. Arch “increased the valuations attributed to some of the investments without justification,” the writ states.

Some £2m was invested in Cru, giving the company a valuation of £9m, although the most recent audited accounts disclosed net assets of only £8,413, according to the writ. The shares were later written down to zero.

Mr Farrell says Arch and its principals “vigorously deny these unfounded allegations in their entirety”. Arch says it “deeply regrets any losses to investors” but blames them on Capita, for its alleged “interference in management” prior to the suspension, the Financial Services Authority, for its “poorly considered intervention”, and the global financial crisis.

It also alleges there is a “significant conflict” in Mr Aldous chairing the board of the cells, given Capita’s role with the UK funds.

Capita, which together with HSBC and BNY Mellon, the depositaries to the UK funds, has offered £54m to help recompense investors, said it rejected the “illogical suggestion” that the suspension of the UK funds was the cause of a fall in the value of the Guernsey cells.

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