The Financial Conduct Authority has found that from 5 February to 19 June 2009 McNeil failed to disclose information that might have indicated its products’ inability to pay out income to investors.
But McNeil has hit back, saying he was “stitched up” by the watchdog, which “misled” him into settling in 2011.
Calling their decisions “ill informed, inaccurate and self-preserving,” McNeil said: “Keydata covered payments to investors and advisers from its own resources during the period of the alleged SOP 4 breach. I reported this exposure on our FCA financial return in March 2009.
“The FCA ignored this disclosure because no one at the FCA looked at this financial return. The FCA’s claim that I should have rang them up and explained what was happening in words of one syllable is nonsense. If they cannot read financial figures, they should not be regulating financial firms.”
Keydata designed and sold investment products to retail investors via IFAs. The products were underpinned by Keydata’s investment in bonds issued by several Luxembourg-based special purpose vehicles, including one called SLS Capital, which invested in life settlement policies, or death bonds.
Following Keydata’s administration process in June 2009, it transpired SLS had failed to make certain payments due to Keydata, which had instead covered £4.2m of income payments from its own company resources.
A statement from the FCA said: “This had the effect of masking problems with SLS and the performance of the SLS portfolio. In his role as Keydata’s finance director, Mr McNeil was aware that Keydata continued to make such payments and failed to ensure that Keydata reported the matter to the FCA or to inform the FCA himself when he knew that the matter had not been reported.”
But McNeil said: “The SLS fund was the subject of an elaborate fraud in 2008. We were unaware of the fraud, but pulled out the stops to ensure investors were getting paid. How I reported the resulting figures would have made no difference to the eventual outcome for investors.”
In addition, McNeil failed to challenge a decision in late 2008 to enter into a “complicated transaction” which attempted to underwrite the missed SLS income payments, rather allowing Keydata to release £500,000 of its own funds without fully understanding the transaction or associated risks.
The FCA added: “Mr McNeil also failed to act with due skill, care and diligence in relation to the security transaction and the release of Keydata’s corporate funds by failing to take sufficient steps to inform himself about the transaction or to understand the risks that were involved.” Mr McNeil agreed to early settlement; as such he was eligible for a 30% discount. The fine would otherwise have been £500,000.