Keydata: investors launch fighting fund to take legal action

Keydata investors have launched a fighting fund to enable them to take legal action against the firm and recoup money lost through £103 million Luxembourg fraud.

The Keydata SLS LSC Investors’ Trust Action Group plans to launch its own investigation into the disappearance of money from Luxembourg-based life settlement vehicle SLS Capital, which backed Keydata Secure Income Bonds.

The group of investors and advisers, who are represented by lawyers Addleshaw Goddard, hope to investigate and pursue the counterparties behind SLS Capital. Only investors who bought bonds direct from SLS Capital, Life Settlement Capital or Keydata Secure Income Bonds one, two or three can join the group.

The Financial Services Compensation Scheme has agreed to change its application form which means investors will retain their legal right to pursue third parties.

The Serious Fraud Office confirmed on Friday that assets from SLS Capital were misappropriated and used to support the business interests of its founder controversial businessman David Elias. The SFO has now turned the focus of its investigation onto Keydata and its spin off life settlement business Lifemark.

Lifemark concerns

Keydata administrator PricewaterhouseCoopers (PwC) has warned Keydata investors who bought Lifemark-backed bonds that their £350 million of capital could now be at risk earlier last week.

The Keydata administrator issued the warning to 23,000 Lifemark investors as talks about restructuring the Luxembourg-based life settlement vehicle came to a head. The Luxembourg financial regulator put Lifemark under the supervision of KPMG in November following concerns about the actuarial assumptions underpinning around £350 million of investors’ money.

Despite the appointment of KPMG, investors were confident the Lifemark money was safe as the life settlement-backed bonds still held a number of assets. However, Dan Schwarzmann, partner at Keydata administrator PwC, has now said:

‘Whilst we understand that there are underlying assets supporting the investments, the provisional administrator of Lifemark is not currently in a position to advise investors whether Lifemark will be in a position to return investors’ original capital investment in full at maturity.’

Lifemark provisional administrator Eric Collard said he hoped to sign a rescue deal for the business today. ‘It is correct to say the principle is at risk…more so than for a good standing company,’ said Collard, partner at KPMG. ‘We would like to proceed as quickly as possible but we need to cover all the issues to understand the full implication of the different options,’ he said.

In February Lifemark proposed to convert its bonds into zero-coupon bonds, which would ease its cash-flow problems but hurt clients who depended on Lifemark-backed Keydata products for income.