In a new working paper, the EEA Investors’ Group said one reason for the company’s failure to release the fund’s information could be to avoid “additional conflict” with directors over its decreasing valuation.
The group’s paper concludes that the fund, which invests into the life insurance policies of terminally ill US citizens, has been “mismanaged and misrepresented” since its inception, and that EEA was “unlikely” to repay any outstanding shareholder capital investments, or past, present, or future “promised growth” amounts.
It said the information released by EEA on the Guernsey-based product has been “insufficient” for investors to make a sensible assessment of its valuation.
“All previous and current EEA portfolio valuations appear to be misleading and misrepresented, leading to significant cash drains which were, arguably, not properly earned or justified,” it said.
The group has subsequently called for an “immediate review” into the fund’s outstanding portfolio of life policies in order to resolve the differences between EEA’s published view of the run-off projections and the group’s more “pessimistic” conclusions.
It also called for an independent investigation into the acquisition and operation of the fund prior to 2013 to calculate whether it was correctly valued and the appropriate terminology was used in its promotional materials.
It will additionaly look at whether the fund should continue to pay valuation-based fees and charges to its directors.
“The portfolio has consistently underperformed in terms of maturities since inception and this has been picked up by the investment advisors, directors and auditors since as far back as 2008,” it said. “Most of the damage has already been done, but we can still make some worthwhile savings if we can persuade the board to change its ways, or the Guernsey regulator to intervene to protect the interests of the investors.”
The fund’s problems started in November 2011 when the Financial Conduct Authority (FCA) controversially issued a notice advising retail investors not to purchase life policy products, labelling them “death bonds”.
The fund was suspended soon after and in 2013 EEA announced a 20% devaluation following an audit by Ernst & Young.
In January 2014, the company implemented its long awaited restructuring proposals under the guidance of new auditor Grant Thornton. But the Channel Islands Securities Exchange Authority refused to relist its shares and, consequently, they have not been quoted on any stock exchange since.
Last month, the FCA controversially issued an additional statement urging investors into the fund to “make a complaint to the firm which sold the investment,” before the Financial Ombudsmen Service’s 1 December 2014 deadline for complaints.
The announcement drew criticism from the EEA Investors’ Group, who said that, rather than “victimising” IFAs by urging investors to make complaints against them, the FCA should have worked with the Guernsey Financial Services Commission to prevent the fund from being sold incorrectly.