The FCA has publicly censured Blue Gate Capital Limited (Blue Gate) and ordered it to pay £203,007 in restitution to investors who lost money investing in the Connaught Income Fund, Series 1 (the Fund).
The Fund, also formerly known as the Guaranteed Low Risk Income Fund Series 1, is in liquidation.
The restitution payments to investors will be made via the FCA.
Mark Steward, the Executive Director of Enforcement and Market Oversight at the FCA said: ‘FCA-authorised operators of funds are expected to undertake sufficient due diligence on the funds they operate. In this case, significant and serious deficiencies existed in the Fund at the time Blue Gate became Operator of the Fund and these deficiencies left investors exposed and unprotected.
‘In total, the FCA’s actions in response to the failure of the Fund, have led to investors receiving back, in net terms, the value of their investment in the Fund.’
The Fund was an unregulated collective investment scheme (UCIS) which commenced operation in March 2008, providing short term bridging finance to commercial operators in the UK property market.
Blue Gate took over as Operator of the Fund from Capita Financial Managers Limited (CFM) on 25 September 2009 and remained as Operator until the Fund’s compulsory liquidation on 3 December 2012.
The FCA found, and Blue Gate agreed, that it breached Principle 2 of the FCA’s Principles for Businesses (the Principles) because it failed to conduct adequate due diligence on the Fund prior to taking it on, failed to investigate potentially serious issues with the Fund of which it was aware and failed, throughout its tenure as Operator, to establish that the Fund was operating as it was supposed to.
The FCA also found, and Blue Gate agreed, that it breached Principle 7 of the Principles because it failed to communicate with the Fund’s investors in a way that was clear, fair and not misleading.
These failings would have resulted in the imposition of a penalty of £10 million, which would have been imposed if Blue Gate had not established it was in serious financial hardship.
The FCA is publicly censuring Blue Gate and requiring it to pay restitution of £203,007 to the investors in the Fund which reflects the profits earned by Blue Gate as Operator of the Fund.
On receipt of the monies from Blue Gate, the FCA will distribute them to investors. It is not necessary for investors to take any action at this time.
Blue Gate and the FCA reached full agreement on all facts and issues of liability and penalty but Blue Gate did not agree the issue of whether it should pay restitution, choosing instead to make use of the FCA’s partly contested case process. The issue of whether Blue Gate should pay restitution was decided by the FCA’s Regulatory Decisions Committee after taking into consideration the representations of Blue Gate.
As a result of FCA action against CFM in 2017[1], CFM agreed to pay up to £66 million for the benefit of investors, including those who invested during Blue Gate’s period as Operator, the amount they had originally invested, less income, redemptions, dividends and other payments received. The intention of these payments was to place all investors as closely as possible back in the position they would have been in if they had never invested in the Fund. CFM has paid out more than £58 million to investors as a result.
The FCA’s regulation of the Connaught Income Fund, Series 1 has been the subject of an independent review. The report of that review[2] and our response[3] to it was published on 17 December.