FSCS concludes investigations into practices of Pentagon Capital Management

Maria Nikolova

The compensation scheme has determined that protected claims may exist against Pentagon, depending on when investments were made.

The UK Financial Services Compensation Scheme (FSCS) has published an update into the matter concerning failed fund manager Pentagon Capital Management plc.

FSCS says it has now concluded its investigations into the practices of Pentagon. The investigations have focussed on correspondence sent by Pentagon to investors in 2003 and 2004 offering assurances to them that Pentagon were not engaged in any unlawful trading practices. FSCS has determined that protected claims may exist against Pentagon, depending on when investments were made.

Claims already submitted against Pentagon will shortly be passed to FSCS’s claims processing teams for assessment.

Pentagon, which was active in the UK and the US, entered administration in June 2012. Pentagon was based in the United Kingdom and operated as an independent financial advisor (IFA) and fund manager for several regulated and unregulated investment funds.

The entity provided financial advice to its clients and, as a result of this advice, investors purchased an investment bond, arranged by Pentagon. The investment bond would provide benefits linked to certain unit-linked funds managed by Pentagon themselves.

In the fall of 2003, the United States Securities & Exchange Commission (SEC) started investigating allegations of late trading against several firms in the United States.

The Financial Services Authority (FSA), the predecessor of the FCA, also initiated an investigation into late trading in UK-authorised Collective Investment Schemes (CIS). In March 2004, the FSA concluded that there was no evidence of late trading in UK-authorised CIS. Following this announcement Pentagon sent letters to its investors reassuring them of the soundness of Pentagon’s investment strategy and drawing investors’ attention to the conclusions reached by FSA.

In 2008, Pentagon learned that the SEC were to take legal action against them and commenced winding down its various funds. On February 2, 2012 the SEC’s claim that Pentagon were engaged in late trading between 1999 and 2003 was upheld. Pentagon was ordered to pay a fine of $76.8 million. The entity then entered administration on June 28, 2012.

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