Former star stock picker Neil Woodford faces an unlimited fine and a city ban after regulators accused him of a series of failings before the collapse of his investment empire.
The Financial Conduct Authority (FCA) warned Woodford that it was preparing enforcement action following a long-running investigation into the disappearance of its Woodford Equity Income Fund in 2019.
It said it had a “flawed and unreasonably limited understanding” of its responsibility to manage “liquidity risks” – the need to be able to convert assets into cash.
The warning notice comes after 300,000 savers had £3.7bn trapped in the fund when it closed in June 2019.
It is the first time the FCA has made public its preliminary findings about Woodford’s role, and his lawyers said they would challenge them.
Rulings: The FCA warned Woodford (pictured) that it was preparing enforcement action following a long-running investigation into the disappearance of its flagship fund in 2019.
The regulator could take around a year to decide what action to take against him, if any, a decision that could then be subject to appeal.
Woodford’s company, Woodford Investment Management (WIM), was also named in the FCA warning notice.
The saga began after savers entrusted their money to the fund manager, who made his name at Invesco before setting up on his own in 2014.
At its peak, the fund was worth more than £10bn. The BBC once described Woodford as “the man who can’t stop making money”.
But his decision to invest in small, unlisted companies proved to be his downfall. After they began to underperform, savers rushed out and the fund was suspended, leaving those who had not cashed out stranded.
The FCA outlined allegations including that Woodford’s firm made “unreasonable and inappropriate investment decisions” even in the face of an exodus of investors and failed to heed “warning signs” about liquidity.
It alleged that defaults between July 2018 and June 2019 “materially increased the risk that the fund would have to be suspended and would therefore disadvantage those investors who did not repay before the time of suspension.”
WilmerHale and BCLP, the law firms representing WIM and Woodford, said: ‘WIM and Mr Woodford disagree with the FCA’s conclusions, which they consider to be unprecedented and fundamentally flawed.
“The conclusions will be challenged by WIM and Mr Woodford.”
The FCA also published its final findings on the role Link Fund Solutions, which was the fund’s supervisor, played in the collapse.
He said Link “failed to manage the liquidity of the fund… so that investors could access their money in a short time.”
Those who were in the Woodford fund at the time of its collapse are starting to receive their share in a £230m compensation scheme from Link, which was approved by the High Court in February.
The regulator said it would have imposed a fine of £50m but this would have reduced the amount investors would receive.
He added that no other party is under investigation for the scandal.