Woodford savers seeking answers as watchdog pushes for £300m payout

Three years after savers in Neil Woodford’s flagship fund were locked out of their nest-eggs, they are starting to get answers.

The City watchdog this week said it was likely to force Link, the firm responsible for supervising Woodford’s management of his funds, to pay a penalty of up to £306million.

This might seem like small recompense for investors who have lost around £1billion since the Woodford Equity Income Fund (WEIF) was shuttered by Link in 2019.

The fund was frozen after a flood of investors tried to pull their money out, following a run of poor performance on Woodford’s behalf.

Of the £3.7billion in the fund, investors have received £2.5billion. There is £118.5million which remains tied up in assets which are yet to be sold.

The remaining £1billion disappeared.

Here, we explore some of the parties involved, and whether they can be pursued . . .

Neil Woodford

Though it was Woodford himself who caused a problem for investors, ploughing too much of their money into risky, illiquid stocks which couldn’t be sold in a rush, there is little opportunity for savers to target him directly.

It was Link, rather than Woodford, who had a duty to investors – a distinction which became ever more frustrating as victims saw the 62-year-old renovating his multi-million pound holiday home in Devon while they were nursing their losses. 

A lawsuit led by investors against the fallen fund manager seems unlikely, but he and his key employees have been scrutinised by the FCA. 

Three years after this probe began, savers will be hoping that the watchdog will soon announce its result – and slap a fine on the fallen fund manager.

LINK

Given that Link was responsible for supervising Woodford’s management of WEIF on behalf of savers, it is perhaps unsurprising that it was first in the firing line.

Now part of Australian-listed Link Group, but formerly part of outsourcer Capita, the firm has previously been forced to pay out £32million and £66million to investors involved in the Arch Cru and Connaught fund debacles.

After featuring heavily in the Financial Conduct Authority’s (FCA) probe into the Woodford scandal, it is likely to face a £306million penalty – but shared between around 300,000 investors, this won’t equate to much.

Link is also being pursued by law firms Leigh Day and Harcus Parker, who have joined forces on behalf of around 13,000 WEIF investors to take Link to court.

Meriel Hodgson-Teall, a solicitor at Leigh Day, said the FCA’s suggested penalty was ‘nowhere near enough to compensate the many thousands who suffered huge and life-changing financial losses investing in this fund’.

The lawyers are claiming that Link failed in its duties to investors leading up to the suspension of the fund, and broke FCA guidelines.

Savers can still join the case. But Hodgson-Teall warned that the FCA may not allow them to claim part of the £306million if they are also hoping to get legal damages. 

The FCA is yet to confirm the details of the Link redress package, but Woodford victims could be left with the tricky decision of whether to take the money which the FCA extracts from Link or to pursue the firm in court in the hope of a bigger pay-out.

Hargreaves Lansdown

The UK’s largest investment platform also attracted ire during the Woodford debacle as it continued to recommend WEIF right up until the fund’s suspension. 

Savers who relied on Hargreaves Lansdown’s (HL) Wealth 50 best-buy list for advice were furious when WEIF shuttered. 

Just a month before, HL’s then-head of research Mark Dampier predicted the beleaguered Woodford was set to turn a corner. Dampier has since retired.

HL is also a target of the FCA’s probe, though the regulator has not yet announced whether it plans to penalise HL as it has Link. 

Boss Chris Hill apologised to clients, but HL is still facing a lawsuit brought by litigation company RGL Management, which works with lawyers to build a case, on behalf of clients.

The Mail understands RGL is due to file its claim – which will also target Link – within weeks.

Unfortunately, savers are unlikely to be able to sign up to multiple legal cases, so will have to choose between RGL and Leigh Day/Harcus Parker.

Northern Trust

A Lesser-known party which became embroiled in the Woodford disaster was Northern Trust (NT), WEIF’s so-called depositary. 

In a similar way to how Link was supposed to keep Woodford in check, NT was charged with keeping an eye on Link. 

Questions arose over whether NT challenged Link over Woodford’s steady accumulation of hard-to-sell stocks. Again, it will be up to the FCA’s probe to assess whether NT went awry.

Guernsey’s stock exchange

The International Stock Exchange (TISE), an obscure stock market operating on Guernsey, found itself in the limelight after Woodford used it to list stocks held by WEIF.

Woodford had snapped up several early-stage companies which were not listed on a stock market – a risky venture since these businesses are harder to sell in a hurry, and have to comply with fewer governance requirements.

For this reason, FCA rules state that they must only constitute 10pc of a fund’s holdings. But Woodford found himself repeatedly breaching this cap. Rather than getting rid of the stakes, he listed them on TISE in a cynical attempt to dodge FCA rules.

TISE was criticised by some industry insiders for not running further checks on Woodford.

The exchange has claimed it did nothing wrong, and blamed the FCA for failing to act fast enough when it reported concerns. 

It could feature in the FCA probe, although Guernsey’s regulator – the Guernsey Financial Services Commission (GFSC) – would have to lead any investigation. The GFSC declined to comment.