Earlier this week it was announced that investors in the Arch Cru funds were to receive compensation for their losses: they’ll eventually get 70% of their money back. Apparently the Fundamentally Supine Authority has OK’d this. What the FSA has blatantly failed to do is point out what went wrong and who was culpable. The most likely explanation appears to be that the funds’ assets were misvalued, either through incompetence or corruption. The fact that there is any compensation being offered certainly suggests that something pretty serious went wrong. Who was the guilty party? What was Capita’s role in all of this? Why is the FSA (reportedly) dismissing complaints against Capita, refusing to investigate them without even considering their merits? And why has it taken the FSA two years to get to this point?

70% eventually back is better than nothing (though this will take several more years to achieve). However, for the widows and orphans who put their entire life savings into the Arch Cru funds because the funds were described as “low-to-medium risk” and classified as “Cautious Managed” by the IMA this is hardly a satisfactory situation. Furthermore, why did Capita allow the funds to acquire assets which clearly did not meet the “Cautious Managed” criteria?

It certainly seems that investors are being paid off to keep quiet so that the guilty party or parties escape without sanction.

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The SFO has been even more lacklustre in its prosecution of the Weavering Capital Hedge Fund fraud. This was a clear cut case of a hedge fund manager lying about the the nature of the fund’s investments. (The fund’s only transactions were interest rate swaps with a company owned by the fund manager’s father.) This fund went belly-up in March 2009. Since then the apparent lack of progress has been staggering. Equally staggering is the lack of information coming from the SFO. A couple of men were arrested and immediately released in 2009 – and that’s it. By this stage I’d have expected the guilty parties to be behind bars. And to date investors have yet to get back a single penny of the money they entrusted to Weavering. Perhaps they never will.

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What both these cases make abundantly clear is that financial regulation in the City of London just isn’t working.

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