The Guernsey Financial Services Commission issued a public notice yesterday stating that Bordeaux faces a £150,000 penalty.
Its former director Peter Radford has also been fined £50,000, while Neal Meader and Geoffrey Tostevin – also former directors – have each been fined £30,000.
In addition to this, the trio received a five-year ban prohibiting them from holding the position of controller, partner, director or manager.
From January 2007 to December 2009, Bordeaux was the “designated manager” and administrator of a number of cell funds domiciled in Guernsey which made up Arch Guernsey ICC Limited, now known as SPL Guernsey ICC Limited.
"The Bordeaux directors demonstrated a consistent and serious lack of appropriate competence, judgement and diligence"
Regarding Bordeaux’s role in the failed Arch Cru funds, the commission said the Guernsey-based firm had failed to “act with prudence [or] exercise professional skill appropriate to the nature and scale of its activities”.
“The Bordeaux directors demonstrated a consistent and serious lack of appropriate competence, judgement and diligence,” it said. “Their conduct demonstrated a lack of understanding and attention to the legal obligations of Bordeaux.”
Unsupervised
Two UK-based open-ended investment companies (OEICs) – the CF Arch Cru Investment Funds and CF Arch Cru Diversified Funds – were run by investment manager, Arch Financial Products.
In 2009, however, the UK Financial Services Authority suspended the two OEICs after it cited problems with liquidity.
Over the course of 2007 and 2008, total investments into the Arch Cru funds totalled about £595m. But by 21 December 2010 the funds’ consolidated net asset value was £234m, representing a huge loss to investors.
The GFSC said Bordeaux had failed to ensure there were procedures in place to avoid conflicts of interest. The company had also failed to train staff appropriately, and failed to monitor Arch FP, leaving the investment manager unsupervised when providing valuations.
False market
During 2008, Bordeaux failed to meet monthly deadlines for calculating the net asset value of the funds on a monthly basis, relying entirely on Arch FP for this information.
Given that most of the cell funds were listed on the Channel Island Stock Exchange (CISX), the commission said this could have led to the creation of a false market as independent investors would have dealt on prices that did not properly reflect the net asset value.
By encouraging investors to cross-invest between cell funds, Arch FP also generated significant fees from inter-cellular trading incurred entirely for its own benefit.
In January, two senior partners of Arch Financial Products were collectively fined £850,000 and banned from the industry for life.
In October last year, the CISX was fined £190,000 over the possible market manipulation of the Arch Cru funds.
