AIG

Posted on Tuesday 23rd March 2010

I am currently conducting a series of claims against (mostly) high street banks who advised their customers to invest in AIG's Enhanced Variable Rate Fund.

AIG is an American insurance company that produced investment products which were wrapped up in a notional insurance policy.

Aimed at wealthy people, AIG's Premier Access Bond was billed as a secure, low risk substitute for deposit accounts. It promised attractive rates of interest on each of its two Variable Rate Funds: the Standard Variable Rate and Enhanced Variable Rate.

When AIG got into difficulties in the Autumn of 2008 there was a run on the Enhanced Variable Rate Fund.

AIG closed the fund and banks gave investors the option of either taking half their money and reinvesting the other half in a new fund called Protected Recovery Fund - or taking a reduced pay out in December 2008.

As the Protected Recovery Fund promised a guarantee of all their money in July 2012, most investors chose to follow their banks' advice.

Our main issues were:

• Why were so many customers recommended to opt for the Enhanced Variable Rate Fund when the Standard Variable Rate Fund was much more secure?
• Why did the banks recommend customers take out an insurance bond? (A single premium non-qualifying life policy that may have tax advantages for higher rate taxpayers who intend to be lower rate tax payers or non-tax payers when they eventually take their benefits.) As we were looking at wealthy people who would always be higher rate tax payers, the bond was irrelevant.
• Was the Protected Recovery Fund a sensible investment?  If so, did AIG investors have to give credit for the benefit of their investment in the PRF when they received it (presumably) in July 2012 or shortly thereafter?

We are helping a large number of clients to make claims against their banks.  We have had one trial.  In that case the Judge found on all material facts in favour of our client, but surprisingly found that the negligence of HSBC did not cause his loss but rather that an unforeseen run on the Enhanced Variable Rate Fund did.  That decision is under appeal to the Court of Appeal and we are expecting a hearing in May 2012.

A number of other clients' claims have been resolved.  It is normal in financial services matters for settlements to be confidential.  I am not going into details here, but I know that we have a number of happy clients as a result of what we have been able to do for them.

In the meantime the FSA has intervened by fining Coutts £6.3 m for the same breaches of the conduct of business rules of which we complain in all our cases.  Actually to be fair to Coutts, of a dismal bunch, they were certainly not the worst.  A scheme has been set up to compensate Coutts' clients (of whom we have two).  The basis of compensation is yet to be announced.

We take the view that those investors who put their money into the Protected Recovery Fund do not have to give credit for the gains in the fund between December 2008 (when their investments were made) and whenever they withdraw them. Most people seem to be waiting until July 2012.  The banks unsurprisingly take the contrary view and this issue remains unresolved.  Either way there are certainly losses deserving compensation as the FSA made plain in their notice in respect of the fine they imposed on Coutts.

We anticipate satisfactory outcomes for all our clients, but, because of the usual rules on confidentiality, you cannot expect my trumpeting every success.  That is, in any event, not my style.