Hargreaves Lansdown set for High Court over Woodford saga

Hargreaves Lansdown, one of the 100 largest publicly traded companies in the UK stock market, is facing a potentially costly High Court battle over its controversial involvement in the Woodford investment debacle, The Mail on Sunday can exclusively reveal today.

The dramatic development in the Woodford saga happened late on Friday. This is when a claim was filed in court on behalf of thousands of investors who lost money as a result of the closure and subsequent disintegration of the multi-billion pound investment fund Woodford Equity Income, run by prominent manager Neil Woodford.

Transactions in the £3.8bn fund were suspended in June 2019 as it failed to comply with a £238m redemption request from Kent County Council.

Woodford, considered one of the nation’s top stock pickers for years, was then removed as fund manager (three years ago yesterday), the fund was closed and most of its assets were sold in a sell-off, crystallizing losses for 300,000 investors. . About £2.5bn has been returned to investors since the fund’s closure.

The claim on Friday was filed by litigation specialist RGL Management on behalf of 3,200 investors involved in the scandal. It represents the ‘first phase’ of a group action that could lead to financial compensation for victims of the Woodford Fund.

What makes RGL’s claim so sensational is the targeting of the power platform Hargreaves Lansdown. Other Woodford-related claims already filed in the Supreme Court by rival firms Harcus Parker and Leigh Day have been against Link Fund Solutions, a subsidiary of Australia-based Link Group.

Link Fund Solutions is the company that oversaw the Woodford fund as ‘authorized company director’ on behalf of investors and which was intended to ensure that Neil Woodford adhered to the fund’s investment mandate to invest primarily in a portfolio of income-generating UK equities .

It failed to do so, allowing Woodford to build a portfolio skewed toward illiquid — and hard-to-sell — investments, culminating in its suspension three and a half years ago. Many of these illiquid investments turned out to be disastrous ones.

RGL’s decision to target both Hargreaves Lansdown and Link represents a significant development in the quest for financial justice for many of the 300,000 investors whose investments were frozen in June 2019.

This is because there are concerns about Link Group’s ability to meet a successful claim in court – or pay compensation demanded by the city’s regulator, the Financial Conduct Authority.

Last month, the FCA sent Link Fund Solutions a “warning message” after it completed (but did not publish) its long-running investigation into the circumstances surrounding the Woodford Equity Income shutdown.

The regulator said it planned to fine Link £50million, plus require it to pay Woodford investors damages of up to £306m (around £1,000 per investor).

The warning prompted Canadian company Dye and Durham to pull out of an acquisition of seven companies belonging to Link Group — including Link Fund Solutions — after being told it might have to pay redress if it went through. with the takeover.

By contrast, Hargreaves Lansdown is in very good financial health. Although profits fell 26 percent in the first half of this year, they still stood at a healthy £269.2 million. Unlike Link, it has the financial means to pay some compensation if RGL’s claim goes to court and is successful. RGL expects its claim against both Link and Hargreaves Lansdown to be ‘more than £100 million’.

Of the 3,200 investors who were part of the first phase of RGL’s claim, 2,800 were clients of Hargreaves Lansdown at the time the Woodford fund was suspended. On Friday, RGL chief executive James Hayward told the MoS: “We are pleased to file this first tranche of claims, providing those affected with a route to seek redress from both Link Fund Solutions and Hargreaves Lansdown, whose respective illegal behavior resulted in significant losses for investors in Woodford Equity Income.” Alexander Weinberg of Wallace LLP, the law firm of RGL, said: “This class action is playing a critical role in providing a pathway for investors in Woodford Equity Income to redress.

“Both institutions, Link Fund Solutions and Hargreaves Lansdown, are failed investors – and they both have compelling arguments to answer.

“RGL is determined that both will be held accountable for their respective shortcomings. The claim against both defendants will be vigorously pursued to that end.’

Hargreaves Lansdown aggressively promoted the Woodford fund as a ‘best buy’ on its website – from the day it launched in June 2014 to the day trading in the fund was suspended.

Initially, the justification for the fund’s best buy label was based on Neil Woodford’s excellent investment record at asset manager Invesco.

His early track record in the Woodford Equity Income fund was also impressive, leading the fund to grow in size to £10bn – not least because of the hype of the fund by the investment platform.

But when its own analysts raised concerns in late November 2017 that the fund was increasing its exposure to “small and unlisted assets,” Hargreaves Lansdown continued to promote the fund.

In March last year, RGL’s law firm Wallace sent a “letter for action” to both Hargreaves Lansdown and Link outlining why it planned to take them to court. This development also emerged exclusively in the MoS.

The letter to Hargreaves Lansdown alleged that in the run-up to the suspension, the asset manager failed to provide “accurate, adequate and current information” to clients about the risky nature of the fund’s portfolio.

This, Wallace claimed, was despite the asset manager’s “ongoing and mounting concerns” about the fund’s increasing exposure to illiquid investments in smaller and privately held companies.

When the Woodford fund was suspended, 134,000 clients of Hargreaves Lansdown had direct interests in the fund worth just over £1 billion. A further 160,000 had indirect exposure through funds with interests in Equity Income, many of which were managed by the asset manager as part of its multi-manager fund offering.

Wallace believes Hargreaves Lansdown has failed customers in three “major areas of law”: the duty of care to them (required under tort) and legal and contractual obligations.

Louisa Spice, from Kent, invested £20,000 in the fund between 2014 and 2018 based on Hargreaves Lansdown’s glowing recommendation. Louisa, who runs a hot air balloon company with her husband, says she would have transferred her holding to another fund had the asset manager told her she was concerned about the risks of the holdings lurking under Equity’s hood. income.

“I strongly believe that justice must be done,” she added. “Investors like me who have lost through no fault of their own should be properly compensated.”

On Friday, another Woodford Equity Income investor – a Glasgow pharmaceutical adviser – said Hargreaves Lansdown was “the biggest culprit in this whole fiasco as they recommended the fund until the day of suspension”. He added: “The day of judgment is in sight.”

But like all investors caught up in this scandal, he may have to wait a little longer. Link has yet to confirm whether it will appeal the fine and the FCA’s demand for redress.

RGL’s claim could also drag on if Link and Hargreaves Lansdown refuse to settle out of court – opting instead to go to court. That would mean that a court decision will be made in 2025 at the earliest.

The next key date is in December, when a judge will decide how the claim will proceed. Harcus Parker’s three claims, Leigh Day and RGL, will likely be merged into a “class dispute order” and treated as one (Harcus Parker and Leigh Day have already joined forces).

On Friday, the MoS invited both Hargreaves Lansdown and Link to comment on RGL’s filing of a claim against them in the High Court. They chose not to comment.

Woodford Equity Income Investors can register to participate in the RGL claim through the website woodfordlitigation.com. Investors only pay a fee if the claim is successful.

RGL will charge 25 percent of any compensation in the form of fees. This compares to 30 percent (Leigh Day) and about 42 percent (Harcus Parker). In the meantime, it is not yet known whether the FCA will punish Woodford for his role in the debacle.