One of the key backers of Purplebricks during its early growth years has  become embroiled in a battle with the Financial Conduct Authority (FCA) after it issued a provisional fine against him and his investment management firm.

Neil Woodford (main image), and Woodford Investment Management, have been issued jointly with fines of nearly £46 million and he has been provisionally banned from holding manager roles and managing funds for retail investors.

But both he and Woodford Investment Management (WIM) have referred the FCA’s decisions to an Upper Tribunal where they will seek to have them overturned.

The FCA’s actions concern the management of the Woodford Equity Income Fund (WEIF) up until its suspension in 2019.

Shareprice nosedive

As The Negotiator reported at the time, the equity fund got into trouble partly because it invested heavily in Purplebricks which, although the gamble paid off initially when its stock price sky rocketed, later brought it problems when the hybrid estate agency’s misadventures in the US and Australia led its share price to nosedive, dragging the fund with it.

But the FCA says its focus is on the management of the fund’s liquidity. It adds: “The fund was suspended in June 2019, leaving investors – a significant majority of whom were ordinary retail customers – unable to access their money.

“The value of the WEIF had fallen from a high of over £10.1 billion in May 2017 to just £3.6 billion in the run-up to its suspension.”

Inappropriate investment decision

The FCA claims that between July 2018 and June 2019 WIM and Woodford made “unreasonable and inappropriate investment decision [and] disproportionately sold more liquid investments – those that are easier to sell – and bought less liquid ones over this period”, it adds.
“This meant that at the time of suspension only 8% of the investments held by WEIF could be sold within 7 days.

Under rules in place at the time, investors should have been able to access their funds within four days.”
Steve Smart, joint executive director of enforcement and market oversight at the FCA, says: “Being a leader in financial services comes with responsibilities as well as profile.

“Mr Woodford simply doesn’t accept he had any role in managing the liquidity of the fund.

“The very minimum investors should expect is those managing their money make sensible decisions and take their senior role seriously.

“Neither Neil Woodford nor Woodford Investment Management did so, putting at risk the money people had entrusted them with.”

In a video released only a few months ago, Woodford said: “There isn’t a day that goes by that I think about the poor investment returns that investors who backed me endured”, although he also highlighted how he couldn’t tell the complete “unvarnished truth” because he was the subject of an FCA investigation. But he described some of the claims about him as ‘misapprehensions’.

WIM has also released a statement saying it “strongly disagree[d]” with the financial watchdog’s findings.

Main pic credit: MoneyMazePodcast.