Keydata

Posted on Thursday 30th June 2011

The keydata scandal has been much in the press.  It is a tangled story and many of the press reports allege fraud by one David Elias, the owner of SLS Capital.

Put very shortly keydata offered investment products which were backed (allegedly) by a portfolio of viatical policies.  Viaticals have long been known as a dodgy investment.  You have to go back to the 1980's when AIDS victims started to sell their life insurance policies.  The buyers undertook to keep the policies on foot by paying the premiums and paid money out front for the policies.  The AIDS victims were expected to die.

Unfortunately for the investors those suffering from AIDS used the money to buy new medicines which kept them alive.  So the policies in order to have any value at all had to be fed continued premiums and the prospect of sufficient deaths to generate money to pay those premiums receded.

The Keydata bonds were supposedly backed with policies written by reliable insurance companies.  They may have been true wholly or in part.  Since the history of Keydata is enveloped in murk we cannot be sure.  There are various action groups to be found on the internet.  Some of the unfortunate investors have received compensation; the Norwich & Peterborough Building Society has made an offer to compensate those whom it advised to go into Keydata.  The Financial Services Compensation Scheme (FSCS) is compensating some purchasers of Keydata products, but not all, up to the limits of the scheme.  This amounts to 100% of the first £30,000 and 90% of the next £20,000 (£48,000 per claim).

Many investors will have lost more than £48,000 per investment.  Some will have been outside the categories which the FSCS is prepared to accept for compensation.
For those with outstanding losses it seems to me the best way forward is to look for compensation to the advisors who recommended these products.  It is in my view not necessary in most cases but particularly where there is a solvent adviser available, to delve into the structural difficulties which lead to the promised funds not being available at keydata level.

Those who have been compensated through the FSCS will have been required to assign their claims to the FSCS.  If the losses are more than the FSCS limit, the FSCS will normally agree to reassign the claim to the investor to enable him or her to get further compensation. Thus the investor can sue, but the first £48,000 of compensation received by the investor is repaid to the FSCS, the investor keeping the balance.

So there is a real prospect in most cases of getting full compensation, even though the FSCS has already paid out partial compensation.  Each claim will be different because it will depend upon the quality of the advice given by the adviser.  However in my experience most advisers relied on the Keydata product literature without further enquiry.  In practice any competent financial adviser knows that viatical policies are insecure investments because they require continual feeding with premiums.  The same is true of traded endowment policies, another area of concern.

The main difficulty faced by investors is limitation.  Keydata policies started to be sold to the public in 2005.  There is limitation period of six years so some of the earlier claims will be expiring soon.

Investors not be fully compensated must therefore take legal advice very shortly decide with a [whether they wish to pursue their advisors through the courts or the Financial Ombudsman Service or not at all.  My team has two families as clients with claims exceeding £1 million.  I am confident that we can make a substantial recovery for them.