Keydata: where do you stand?

19 August 2009

The skeletons just keep coming out of the closet at insolvent investment firm Keydata. The latest instalment of the sorry saga reveals that the money of hundreds of its clients has not been properly invested in their plans due to administrative errors.
For some investors this means that their cash may not have been invested in any product at all.
The news was unearthed by the firm’s administrators, PricewaterhouseCoopers (PwC), at Keydata’s creditors’ meeting on Monday 17 August 2009.
Keydata, a provider of structured products, went into administration on 8 June after the Financial Services Authority (FSA) fined the company £5 million for selling non-compliant ISAs.
It has since been revealed that the firm owes HM Revenue & Customs a tax bill of £12.7 million - more than double the initial figure.
PwC says its investigation has found that in a number of cases investors’ cash may not have been invested in the correct product or they may hold fewer units than they are entitled to.
Although Keydata were aware of their blunder, the affected clients were kept in the dark.
PwC says the company did not advise its clients of the issues and continued as if these investments had been properly invested. Keydata continued to make payments to investors and covered any shortfall from its own funds.
While only a few hundred investors are affected out of tens of thousands of clients, those individuals who were not invested in any product at all could stand to lose all their money.
PwC says it will be contacting the relevant investors personally over the next few weeks to notify them of any discrepancies in their investments.
Compensation time
Meanwhile, it looks increasingly likely that 5,500 Keydata investors will have to turn to the Financial Services Compensation Scheme (FSCS) to get their money back.
This can pay out 100% of the first £30,000 invested and 90% of the next £20,000. This equals a maximum of £48,000.
The 5,500 investors with secure income bonds had their income payments and redemptions put on hold by PwC in June after it emerged that the underlying investments of life insurance based income products held by a company called SLS Capital had vanished.
The Serious Fraud Office has launched an investigation into this matter.
Tens of thousands of Keydata clients could also incur tax liabilities after products invested with Lifemark S.A have been identified as non-Isa eligible.
PwC has said that income for these products will be paid gross and clients will need to include all income paid by the administrators on their personal income tax return. 
Question & Answers...
Which products are affected?
Secure Income Bonds 1, 2 and 3 - 5,500 investors in these products have had their income payments and redemptions put on hold while the FSA and the SFO investigate the disappearance of the underlying funds held by a company called SLS Capital.
Around 240 investors who invested into income property bonds run by Hometrack have also had their investments frozen.
Keydata or Lifemark products invested with Lifemark S.A - These products have been identified as non ISA eligible products so individuals will now need to include all income paid by the administrators on their personal income tax return. Income will be paid gross. No early redemptions are allowed on these products. (See  for a full list of these products)
What happens next?
If the money cannot be recovered, investors have the option to lodge a claim with the FSCS once Keydata is declared in default.
The FSCS pays a maximum of £48,000 in investment cases.
Investors can stay up to date with what is happening through the PwC helpline on 020 7804 4424 or through it website.
Which products are safe?
Keydata products backed by blue chip financial firms are able to withdraw their funds. Income payments will be made net of basic-rate tax.
There is no issue with cash ISA products and payments are being made in the normal course. Products where Keydata only provided back office services are also unaffected.

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