The Woodford saga: Ontier LLP’s Kerri Wilson uses her legal lens to assess lessons so far

by | Apr 23, 2024

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Analysis and insight into some of the lessons we can and should learn from the whole sorry Woodford saga, by Kerri Wilson (pictured), senior associate in the London office of law firm, Ontier LLP

Recent developments involving Woodford and Link Fund Solutions (LFS) have captured headlines and investor attention alike. The ongoing saga has taken another twist with the Financial Conduct Authority (FCA) issuing a final notice against LFS further entwining the fate of stakeholders in this high-stakes drama.

 
 

The Woodford Debacle: A Recap

The story begins with Neil Woodford’s fall from grace, once revered as a luminary in the investment world. The collapse of his flagship fund, the Woodford Equity Income Fund (the “Fund”), in 2019 triggered a series of events that resonated throughout the financial community. Central to this storm was LFS, the Fund’s administrator, whose oversight practices came under intense scrutiny. The suspension of the Fund aimed to prevent a mass exodus of investors seeking to redeem their holdings, exacerbating the liquidity crisis within the fund. Woodford’s strategy, heavily reliant on illiquid and unlisted assets, faced harsh criticism as investors found themselves trapped without immediate recourse.

Litigation Looms Large

 
 

In the aftermath of the Fund’s suspension, litigation emerged as a primary avenue for investors seeking recompense. Claims of mismanagement, inadequate oversight, and breaches of fiduciary duty were levelled against both Woodford, WIM and LFS. Class-action lawsuits and individual claims sought to recoup losses and hold responsible parties to account.

Link Fund Solutions: The middleman

LFS found itself squarely at the centre of the crisis. Questions were raised about its role in monitoring the Fund’s liquidity and its handling of the suspension. Investors and regulators demanded answers, sparking a whirlwind of legal and regulatory activity.

 
 

The FCA: A Pivotal Moment?

Amidst legal battles and investor discontent, the FCA’s investigations and conclusions mark a crucial milestone. The regulator’s findings not only shape the narrative surrounding the Woodford saga but also hold potential implications for the broader fund management industry. While specific details are yet to be fully disclosed, initial indications suggest a nuanced outcome that may offer some vindication for affected investors while also shedding light on systemic regulatory shortcomings.

LFS: The Final Verdict

 
 

The FCA’s investigation revealed that between July 31, 2018, and the Fund’s suspension on June 3, 2019, LFS failed to effectively manage the Fund’s liquidity, hindering investors’ ability to access their funds promptly. Moreover, LFS neglected to adequately oversee WIM or ensure timely action on liquidity concerns. The final notice against Link Fund Solutions confirms these failings, which prompted the FCA’s inquiry and subsequent settlement agreement with LFS, including compensation for affected parties. Investors in the WEIF at the time of suspension are beginning to receive a share of the up to £230 million redress scheme, approved by the High Court in February.

Woodford and WIM: Facing Consequences

Separately, the FCA has issued warning notices to Woodford and WIM, proposing to take action against them for their roles in managing the Fund.

 
 

Warning notices signal the FCA’s intent to take enforcement action and allow the recipients to respond. The notice, issued on February 19, 2024, alleges that Woodford had a flawed understanding of his responsibilities for managing liquidity risks and failed to ensure an appropriate liquidity risk framework. It also accuses him and WIM of inadequately addressing the Fund’s deteriorating liquidity and maintaining an unreasonable liquidity profile.

Converging Dynamics: Implications and Insights

The convergence of litigation involving Woodford and LFS with the FCA’s findings underscores the complexities of accountability in financial markets. Investors, regulators, and industry participants face fundamental questions about risk management, transparency, and fiduciary duties. While the findings and ongoing legal proceedings offer hope for restitution, the road ahead remains uncertain, emphasizing the importance of transparency, oversight, and investor education in rebuilding trust and confidence.

 
 

Looking Ahead: Lessons Learned and Paths Forward

As the fallout from the Woodford debacle subsides, the financial industry confronts a reckoning. The events surrounding the Fund’s collapse serve as a sobering reminder of the risks inherent in pursuing yield without proper diligence and risk management. Moving forward, stakeholders must heed these lessons to cultivate a more resilient and accountable investment landscape. Transparency, robust oversight, and investor education will be pivotal in restoring faith in the markets. Ultimately, the intertwining litigation and FCA findings form a crucible of accountability and reflection, shaping practices, regulations, and investor expectations for years to come.

Kerri Wilson, senior associate in the London office of Ontier LLP

 
 

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