The Action Group For Life Settlement Fund Investors said the warning, which also referred to the products as “death bonds”, utilised a “legal sledgehammer” by deliberately using “inflammatory and inaccurate” language.
The group said the FSA, a forerunner to the Financial Conduct Authority (FCA), had an obligation to interfere as little as possible, and could have used “more measured and accurate terminology”, therefore breaching the so-called “principle of proportionality” in article one of the Human Rights Act.
It added that there is no evidence that the FSA explored less restrictive alternatives to its announcements, which is contrary to the Department of Justice’s guidelines.
It also suggested there was no communication from the FSA to ensure that those to whom its restriction applied could find out about it, meaning the warning has no legal basis. It added that this breaches article six of the Human Rights Act, which requires all public authorities to provide the right to a fair hearing.
The warning had a negative effect on many life settlements funds, such as the EEA Life Settlement Fund, which was subsequently suspended.
The action group believes the regulator should compensate investors into life settlement funds for the restriction of their qualified human rights “in the same way that property owners who suffer compulsory purchase to enable road building or other deemed necessary infrastructure, are paid compensation”.
In September this year, the FCA issued a further warning, advising investors into the EEA Life Settlements Fund to “make a complaint to the firm which sold the investment”, before time runs out.
The EEA Investors’ Group, a group representing investors into the fund, subsequently criticised the FCA for “continuing to harm” advisers by encouraging complaints against them through its “bombshell” warning.
In today’s notice, the Action Group For Life Settlement Fund Investors, added that the fact that the underlying assets of EEA retain some value several years after its suspension suggested it “could not justifiably” have been labeled ‘Ponzi-like’ or based upon ‘toxic assets’.
“As the basis of this claim is an unlawful restriction of human rights, individual and corporate exemption from liability is forfeit. Damages should therefore be paid in addition to any settlement based upon the capital value of investment at the time of the suspension,” it said.
The EEA Life Settlement Fund was established in 2005 and advertised as “a low risk, uncorrelated investment solution” regulated in Guernsey by the Guernsey Financial Services Commission.
The fund offered investors the opportunity to invest in life policies that had been purchased in the USA from people who became terminally ill after taking out the policies and could no longer cash in their policies for more than a small amount.
EEA proposed to pay all the remaining instalments into the policy until the original beneficiary passed away, at which point maturity would be paid to EEA.
