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Arch boss hit with £20m claim in Cru fallout
by Jun Merrett on Apr 16, 2012 at 11:27
Arch Financial Products chief executive Robin Farrell has been hit with a £26 million legal claim as the fallout from the Arch Cru funds scandal has taken another turn.
The board of the Channel Islands-listed cell companies that make up the funds have alleged that Farrell ‘dishonestly assisted’ Arch, which managed the Arch Cru funds, ‘in relation to its breach of its fiduciary duties’.
Farrell (pictured) said the legal challenge was a ‘cynical, vain and desperate attempt to widen the net of claims’.
‘Arch Financial Products and its principals will vigorously defend themselves and are very confident in their position,’ he said.
The board has alleged that Arch made £3 million of ‘secret profits’ from the cells’ investment in student accommodation group Clubeasy. A further £3 million was received by Foundations Capital, a British Virgin Islands-based company with which Arch had a ‘close business relationship’ as part of the deal the board has alleged.
It said in its particulars of claim against Farrell: ‘Unbeknown to the cells, Arch acting in breach of its contractual and fiduciary duties, used their money to make secret profits of £3 million, for which it has failed to account, and arranged for Foundations Capital Limited to receive £3 million as well (of which £556,000 was immediately repaid to Arch in respect of Arch’s investment in a joint venture company founded by Arch and Foundations Capital Limited.’
In October 2007, the cells invested £20.2 million in Lonscale Limited, a shell company used for the Clubeasy acquisition, according to the claim. However, Lonscale bought Clubeasy for a total consideration of £15 million, as Arch is alleged to have ‘arranged for sufficient money to be raised from the cells to finance both the cost of the acquisition of the Clubeasy Group and the £6 million’.
The cells later invested a further £6 million in Lonscale, but following the Arch Cru funds suspension and efforts to recover money from its investments, they sold their holdings in a deal that included a £10.6 million payment over 21 months. However, so far it has received only £4.4 million of cash and shares, with the final instalment due in January 2013.
The board is claiming for total losses of £20.5 million related to Arch’s alleged breaches of fiduciary duty, with a further £6 million claim related to the disputed payments.
It is the second legal challenge the board has launched, following its January claim against Arch for £150 million for alleged gross negligence in its role as manager of the cells.
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