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A group of 10,000 investors who lost money in H2O Asset Management’s illiquid investment scandal has filed a legal challenge in London against the Financial Conduct Authority, which approved what they allege to have been an unfair compensation deal worth €250mn.
Collectif Porteurs H2O, a group of 10,000 investors that is suing the asset manager in Paris for what it claims are hundreds of millions of euros in losses, this month applied for a judicial review of the compensation settlement, which was agreed with the British financial regulator in August.
The FCA publicly censured H2O for failing to “carry out proper due diligence” on investments linked to the controversial financier Lars Windhorst and for “providing false and misleading statements and documentation to the regulator” during its investigation.
The FCA noted that it “would have imposed a substantial fine on H2O for its serious breaches”, but instead struck an agreement whereby H2O would make €250mn “available to all those whose investments remain trapped”.
Collectif Porteurs H2O applied for the judicial review — a two-stage UK court proceeding in which a court reviews the lawfulness of actions taken by public bodies — in a bid to “quash” the settlement.
Once a star of the European investment industry that oversaw more than €30bn at its peak, H2O was plunged into crisis in 2019 after the Financial Times revealed it had substantial exposure to hard-to-sell securities tied to Windhorst.
The following year, H2O froze €1.6bn of investors’ money it had poured into these illiquid investments — the bulk of which still remains trapped — after French regulators raised concerns around their valuation.
H2O structured the settlement offer so that investors have to waive their rights to bring legal claims against both the asset manager and “third parties” over losses on the illiquid investments. As well as H2O, Collectif Porteurs H2O is seeking compensation from the asset manager’s former majority shareholder Natixis; the auditor of its funds, KPMG; and the funds’ custodian, Caceis.
Investors who hold out and continue to pursue litigation will also only receive a share of between €170mn and €187.5mn from the settlement pot and may have to wait years to receive compensation, under the deal structure. In contrast, those who sign up to H2O’s offer receive an “enhanced and earlier payment” entitling them to a portion of between €62.5mn and €80mn of additional compensation.
Gérard Maurin, the president of Collectif Porteurs H2O, said that while the spirit of the FCA’s decision was to allow for “partial compensation” of all investors, H2O had “unfortunately misused the agreement to dissuade victims from taking legal action”.
He added that the judicial review “is mainly aimed at forcing H2O to reverse the discrimination that it wishes to impose on [fund investors] seeking fair compensation for their losses.”
The FCA, which is named as a defendant in the high court filing, declined to comment. H2O, which is named as an “interested party”, also declined to comment.
The court must first rule whether to grant Collectif Porteurs’ application for a judicial review before moving to a substantive hearing.