Investors have been trapped in the stricken $410m (£283m, €368m) fund, based in Guernsey, since 2011.
Illiquidity brokerage specialists Tullett Prebon Alternative Investments (TPAI) - the company running the sale offer – announced last week that it has lined up buyers willing to pay run-off investors 26.69% of the original price.
David Trinkwon, coordinator of the EEAIG – an action group working on behalf of investors to get the best deal for secondary shares - called the offer “dismal”, even for a “distressed” sale to hedge funds.
Pricing too low
He accused TPAI of deliberately pricing the shares too low in a bid to discourage sellers from taking up the offer.
“Risk and uncertainty always translates into a lower offer price. The very clever and professional buyers behind TPAI have either concluded for themselves that the EEA valuations are overblown again or simply that EEA does not provide enough or credible information about future prospects to enable a more accurate assessment.
“You have already lost (on average) about 20% of your original investment, and the 2015 Policy Sale has lost you a further $47 (£32.1, €42.2) per share for future net asset value (NAV)."
“EEA would probably say that it’s all my fault for constantly undermining the valuation of the fund. In my very humble opinion, the ‘market’ has spoken,” said Trinkwon.
Trinkwon, the director of Medley Systems, said sellers looking to accept the offer or those looking to offload their shares “as soon as possible and at any price” must let TPAI know by 24 June.
EEAIG has also set up a separate to try and recover investor losses caused by what it calls “the alleged negligence, misrepresentation and abuse of position by EEA and relevant parties” over the ten years since it launched in 2005.
Trinkwon urged financial advisers to stop telling clients that "everyone will die eventually and that they will get ‘all their money back’ from EEA".
"The former is true, but not the latter,” he said.
He also warned investors to give up hope of ever getting their original investment back, predicting that “it will get worse as time goes on”.
According to the EEAIG, investors have already lost about 20% of their original investment. The 2015 Policy Sale caused the net asset value (NAV) of shares to decline a further $47 per share.
“EEA’s current valuations and lack of credible maturity or run-off projections means that everyone is ‘sailing blind’ but is trapped within the flawed restructuring which EEA forced on us with misleading warnings of ‘liquidation and huge capital losse’ and with the approval of the Guernsey Regulator in 2013. Investors have no viable way of avoiding these losses and probably more to come,” he said.
EEAIG revealed that two private investors had previously planned to offer a premium on the TPAI strike price, but since hearing the offer, one has pulled out of the deal while the other is only offering to continuing shares for 37.5% rate.
Trinkwon said he will continue to work with the potential buyers to further their understanding of the EEA valuations in a bid to improve their offers and make a “more attractive and ongoing secondary market” for the shares.
After its launch in 2005, the EEA fund experienced a rush of redemptions in 2011 after the Financial Conduct Authority (FCA) warned retail investors not to invest in what it controversially described as “death bonds”.
Suspended in 2011, the fund resumed trading in 2014 after the Guernsey Financial Services Commission approved a restructure that divided shares into continuing shares for those wishing to remain in the fund and run-off shares for those wanting out.
Around 60% of the shareholders in the fund hold run-off shares, with EEA paying investors £56.1m last September after it sold 188 US life insurance policies to an undisclosed buyer for £83.3 million.
In August 2015, EEA announced that it was in discussions with TPAI about running a secondary sale process for run-off shareholders.
TPAI will match its clients who have indicated that they wish to purchase run-off shares with EEA run-off shareholders who are looking to sell.