Law firms are examining whether other companies such as Hargreaves Lansdown PLC (LON:HL.) could be dragged into a wider compensation case against Neil Woodford after the winding-up of his flagship fund.
Around a quarter of the value of the collapsed Woodford Equity Income fund is still unsold, the fund’s corporate director Link Fund Solutions revealed last Tuesday.
The fund, which was gated in early June and began to be wound up in October, had a maximum allowance of 10% in illiquid holdings such as unlisted companies.
Link said last Tuesday that just over 70% of the current fund value has been raised from the sale of the liquid elements of the portfolio, such as large- and mid-cap equities, which the lawyers say indicated the fund’s excessive illiquidity
Kamran Vojdani of Leigh Day said the law firm has been contacted by “more than 2,500 investors” in the former Woodford fund who were seeking compensation.
Law firm Slater & Gordon also confirmed that it is investigating claims against Hargreaves Lansdown over the Woodford fund saga and is likely to at some point coordinate with other claimant firms, as seen in other group litigation actions such as against Volkswagen.
Vojdani told Proactive that his firm was examining whether Hargreaves Lansdown was aware of the problems at the fund while it continued to promote it as part of its ‘best buy’ list until the fund was suspended.
He noted that Hargreaves had only taken the Woodford fund off its Wealth 50 buy list after it was shuttered last June, despite there being "clear alarm bells and red flags" about liquidy issues, including concerns the platform had itself made since 2017.
Other law firms are also looking at how Link Asset Services monitored the situation, the Telegraph reported on Wednesday.
In terms of the anticipated compensation, Leigh Day's Vojdani said: "It's something we're still investigating, but if there is some wrongdoing the aim would be to try and get investors back to zero. So if they've put £10 in and got £6 back we'd look to get the other £4 back.”
Gareth Pope, head of group litigation at Slater & Gordon, said: “The recent revelation that Hargreaves Lansdown cut its stake in the Woodford fund just weeks before its suspension will be of concern to investors who will undoubtedly question the timing of such a move.
“If this was simply part of a typical restructuring, it begs the question as to why they waited so long to withdraw these funds and why alarm bells weren’t ringing when other fund managers had been warning of problems since May 2018.
“Such warnings should have prompted an immediate investigation into the performance and viability of the Woodford fund. Instead Hargreaves Lansdown continued to include it on their ‘best buy’ list as a sound investment, which it most certainly wasn’t.
“Concerns have also been raised as to whether the fund sunk more into illiquid holdings than was allowed under FCA rules, which would be a serious breach.”
Pope said incensed investors believe these actions warrant “further investigation to establish whether Hargreaves Lansdown has misrepresented the true nature of the Woodford fund”.
Last week’s interim results from Hargreaves Lansdown showed it had shrugged off the “reputational damage” that some analysts had expected from the Woodford crisis, with around 15,000 net new clients signing up in the three months to 31 December, little changed on previous quarters.
In the weeks after the suspension of redemptions from the Woodford fund, Hargreaves was forced to defend how it kept the fund within its buy list and the close links with Woodford's firm, with newspaper leaders thundering this was “a failure of due diligence” and quoted “a conflict” of interests.
The Financial Conduct Authority has since been taking a closer look at the issues around illiquid investments, though industry criticism rumbles on over the lack of regulatory control.
A spokesperson from Link said: “The key responsibility of LFS in its role as authorised corporate director of the LF Equity Income Fund, is to always act in the best interests of all investors in the fund.
“LFS take these responsibilities very seriously and considers that it has at all times acted in accordance with applicable rules as well as in the best interests of all investors of the Fund and it will continue to do so.”
Hargreaves Lansdown turned down the opportunity to comment.