One of the unfortunate consequences of having supposedly safe and secure segregated assets taken from clients is that many are too impoverished to take legal action.
There is still the prospect that if the case is clear cut against any of the likely legal targets then KPMG will take action on behalf of out of pocket clients. There are two issues here; firstly, while I confess to only taking a superficial look, I haven't seen any precedent of Administrators taking legal action in other cases.
It appears the usual process is to assign the claim to creditors / clients. Secondly, if the Administrator takes action, then this will deplete further our remaining funds available for distribution and delay payout through the almost inevitably protracted legal process.
My own preference is for the Administrator to provide a clear and detailed report on what has happened and make it available for claimant representatives to pursue a claim. It appears archaic and unjust that effected parties have no automatic right to see such information.
All clients that are left in a position needing to recover funds need to see this report regardless of whether, at this stage, they have the resources to employ solicitors to lobby on their behalf. There cannot be two tiers of information flow to impacted clients.
The hope is that an early report in combination with assignation of the claim to clients could result in an early 50% distribution. That's based on the £16.7m remaining cash announced by Worldspreads and further asset sales with KPMG restricting their fees to around £2m. Of course we await further information on this from KPMG and selling hedged positions could move the figure upwards or downwards.
The alternative if KPMG pursue the claim is a potentially lengthy wait for any funds above 50k to be released. That might be the preference of many. I can see the validity of that point if the case is particularly clear cut and likely to lead to reasonably prompt settlement. In fact, I would favour such a route myself. If, however, the consensus is that a drawn out legal pursuit is on the cards my preference is for assignation of the claim and a reasonably substantive percentage early pay-out.
Clients with over 90k to 100k can then look to externally funded legal options.
The first port of call is to see if a CFA (Conditional Fee Arrangement) is available. One of the purposes of this piece is to call on any solicitors with an inclination to take this on with a CFA charging structure to get in touch with Rav, the blog owner.
The second route is to look at legal funding groups. If the prospects of success are higher than 70% (usually as assessed by a barrister) then there are groups including hedge funds who will fund a high value case in exchange for a whopping 50% of any return.
I hope clients don't have to go down the second route and solicitors I have spoken to who are not inclined to take on CFA cases suggest that there may be some firms who might pursue the claim on a CFA basis.
There is also the scope of expanding the number of clients who pursue legal action to anyone who has lost funds from being out of the market. Worldspreads have the legal right to close our positions under the T & C, however, they also had an obligation to return resulting balances. Accordingly, there may be a case for those that can show that they are long-term position holders who, in the absence of returned balances, have lost simply because they are unable to replace their same positions and mitigate.
If any solicitors are inclined to look at taking this potential case on with a CFA are reading this blog then please do get in touch. Email Rav :- nshah10@hotmail.com
Best wishes and good luck to all,
Nick
I received a letter from KPMG yesterday. It basically stated that they knew I had a claim and that the claim would be considered etc and that I needed to opt-out if I did not want to persue the said claim.
ReplyDeleteHi Steve,
ReplyDeleteCan you confirm this is the 2nd letter you have received from KPMG
Thanks
Rav
No, this is the first letter and I have not contacted them by phone or letter so far. They have instigated this contact themselves.
DeleteKPMGs role is to recover and then distribute funds to creditors,not just client monies which have seniority but all creditors such as landlords /Utilities etc if there is sufficient cash. The whole point in having an Administrator is to prevent a mad scramble in the aftermath of a collapse by creditors all trying to secure their particular claim and in the process dublicating legal expenses. The process is put in the hands of a single body, the Administrators, exactly so that a single body recovers money due.
ReplyDeleteIn this case, the company is reasonably straightforward, there is no stock to be liquidated etc. But unlike most companies that go bankrupt, this company was regulated by the FSA and had strict client money segregation rules that both the Directors and the Auditors were supposed to ensure were followed. In this case they demonstrably didnt and it is this that makes Worldspreads so different to the normal collapse of a company.In this case it would appear so clear cut that the Directors and Auditors failed to carry out their duties in respect of ensuring client money was segregated that there is every reason to suppose that the Directors and Auditors can be sued to make good the shortfall. In addition, unlike Lehmans and MF Global the shortfall at £13m is of a size that can realistically be fully covered by them.
I dont know enough about legal matters to know if there is a precedent for the Administrators to pursue a claim or not (in the US the Madoff Administrators certainly are) but I dont see why that matters because everything has to happen first time once.
It seems to me that for each client to pursue their own legal claim is highly wasteful as it will dublicate much work.It will only make the lawyers happy as is so often the case in these situations. Far better surely for a single body, the Administrators , on our behalf to appoint and negiotiate fees with a single lawyer to pursue a claim on behalf of all of us.
This should not affect the distrbution of assets to clients. The FSCS will still payout up to £50,000 because they will then be assigned the claim and get any subsequent recovery. KPMG just have to make a conservative assumption of what the legal costs will be and distribute the rest. The money held back per client will almost certainly be less than a client would have to pay their own lawyer and would prevent a client with few funds from falling into the arms of a CFA/ hedge fund who will take most of the payout.
I feel strongly that the best option is for KPMG to hire and pursue a claim against both Directors and Auditors, but I suspect we will have to put a lot of pressure on them to do it because it is not standard and a lot of hassle for them.But all we are asking them to do is to recover the monies we are owed and it is their job to do it.
A key problem as I see it is... where did KPMG find what remains of the client funds? Was it in the client segregated account(s), is it still with other brokers (counter-parties) or is it all sat in the firm's own bank account? This could effect how the money is distributed. If the money left is all in the ring fenced accounts then no one else is entitled to make a claim against it and 100% of it must be split up and returned to the clients. If however there is nothing left in the client accounts, and it's all in broker accounts and / or company accounts then the creditors would be within their rights to lay claim to it.
DeleteI dont think it matters where it is because money should never have been removed from client accounts and so any money will be deemed to belong first and foremost to the clients. Any money held in company accounts will be deemed to have originated in a client account which if you think about it all money at Worldspreads must have originated in a client account.
DeleteI totally agree with your last statement and your time and comments
ReplyDeleteare appreciated.
Kind Regards
Rav
I am now an ex employee of Worldspreads and wish to initiate a claim against them for the shortfall of cash owed to me for my salary, holiday and contract, I know there are others looking to do the same. It is not so much for the amount of cash recoverable it is for ruining peoples careers and clients livelihoods.
ReplyDeleteNone of us are too familiar with how to go about this, I too am in favour of group action as it is more co-ordinated, straight forward and less time consuming. But apart from understanding what needs to be done at what point does one generate such action?
Do we need to wait until KPMG have settled the account and once we all know what we have got back then sue for the balance?
When we do issue legal proceedings who do we issue against? Do we issue separate claims against the directors and Ernst & Young, or is a joint one possible?
The directors should be made to pay, we should not allow the likes of Foley, O'Kelly, Bacon, McNeill, Langham and the non executives any chance of getting away with this. It would not surprise me if they are already putting all their assets into their wives or other family member names. Why should these guys get away with it, ultimately it is their failing and theirs alone that adequate internal checks were allegedly not in place.
These guys do not care about you and me, they may say they do but we are barely a flicker of concern for them, they are pre-occupied looking after number one, their careers and egos are all that matter to them.
If we are able to bring a civil action against these guys I for one will lose no sleep should it result in financial ruin and a professional career in tatters for them. They want all the trappings that come with a directorship and so should face all the consequences given it is they who are responsible for this negligence.
As an employee you do have a claim on the remaining assets but unfortunately you rank behind client money and alongside other trade creditors such as the Landlord etc. As there is a shortfall in the client accounts of £13m, as I understand it until that shortfall is plugged I am afraid there is no money to meet your claim. The only way that there could be is if the Administrators sue the Directors and Auditors and recover more than £13m that would allow all claims to be meet including yours.
DeleteYou could technically bring your own claim against the Directors /Auditors but I suspect it would not be cost effective unless you get together with other employees. My understanding is that you could not join a class action with clients because you are in a different creditor class, but would have to join with other unsecured creditors.
Your best bet would be to pursuade KPMG to sue the Directors and Auditors for so much that it would cover your claims.
I fully understand your anger. I too have no sympathy for any of the Directors. As you say they all wanted the trappings of Directorship without the responsibility.
Well hopefully we will have news for them and they will shortly be finding out that a Directorship carries with it a rather large bill if things go wrong on their watch.
Best of luck.
Thank-you for your comments and views, very much appreciated. I am under no illusion about what I will get from action against Worldspraeds,preceisely zero!
ReplyDeleteI feel my best efforts are to sue the directors and/or Ernst & Young. I will write a detailed email to KPMG on monday asking them what I need to do, when and how? At the very least they should be able to point me in the right direction.
I will look to start an ex employee action group and take whatever action I can against the directors and Ernst & Young. As mentioned the money is welcome but the driving force will be to ensure as much discomfort as possible is brought to bare. I have seen the egos, I have witnessed the politics and now I am suffering the consequences of their negligence, mis-management and in some cases alledged fraud.
Anon,
ReplyDeleteJust an idea, as you are an ex-employee, IF you have your own household insurance cover, check the policy MAY have legal expenses cover which could possibly assist with solicitors costs and get proper legal advice.
JAY111S
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