Collapsed money management firm WealthTek was running with a significant shortfall in client assets for a “prolonged period of time”, investigating administrators say.
The Tyneside firm, which also traded as Verterm Asset Management and Malloch Melville, was shutdown by the Financial Conduct Authority earlier this year after “serious regulatory and operational issues” came to light and it was subsequently placed into special administration – a court appointed insolvency process for regulated companies.
Administrators later found a shortfall of more than £81m in client money and assets, as founder and director John Dance saw £40m of assets frozen amid a fraud and money laundering probe. The shortfall has since been cut slightly to £80.4m, which is made up of an asset shortfall of £70.7m and a client money shortfall of £9.7m.
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An update from the insolvency experts at BDO, who have pored over 12 years worth of transactions, has revealed there are issues with the accuracy of WealthTek’s books and records and it has sought advice about how it may have impacted a plan to distribute sums to the failed wealth manager’s clients. In September, out-of-pocket WealthTek customers were told by the Financial Serviced Compensation Scheme that they could receive payouts over the missing money and assets, up to the value of £85,000.
In a further update in the past fortnight the Scheme, which is set up to protect customers of failed financial services organisations, said it had taken the step to declare WealthTek “in default”, a step which indicates it believes there are eligible claims that cannot be met by the firm in question. It said there was still a “considerable amount of work to do before customers can be reunited with money and assets and the issue of shortfalls addressed”. Separately, the Scheme confirmed to The Journal that as it stands, it does not expect clients will need to submit individual claims as it anticipates required information will come from the special administrators, and hence it is currently closed to claims.
The Scheme has urged WealthTek customers to subscribe to its alerts for the latest information. Meanwhile the joint special administrators said they had worked with Mr Dance’s lawyers to work out if there were further client assets, but none further had been found.
BDO’s latest report also detailed how it expects any proceeds from future civil or criminal proceedings brought by the Financial Conduct Authority against Mr Dance will be made available for those impacted by WealthTek’s breaking of regulatory rules. Within the report, BDO said: “Without waiving privilege, the joint special administrators (JSAs) have undertaken a funds flow analysis of circa 75 bank accounts previously operated by the LLP with a view to obtaining a better understanding of the inflow and outflow of funds. This involved the review of circa 52,000 transactions covering a period of over 12 years.
“This work has assisted both the client asset reconciliation and in developing the JSAs’ understanding of how the client asset shortfalls have arisen. Due to reasons of confidentiality and to avoid prejudicing any actions that the JSAs may identify against any third parties, the JSAs are unable to provide any further information in relation to the funds flow analysis at this time. This is normal market practice and in the best interests of clients and creditors.”
