£35m failed Equity Trust scheme "has damaged Island's reputation"

Monday 20 July 2015

Jersey's reputation as a finance centre was damaged by a botched property scheme that saw 900 UK investors lose around £35m, says the regulator.

On Thursday, the Jersey Financial Services Commission issued a statement announcing that its long and acrimonious battle with Equity Trust - who administered the scheme - was almost over.

The company and investors have now agreed to a settlement offer, which is a significantly less than the original investment that backers put in.

The regulator has been highly critical of the trust company although it says the relationship has improved since 2014, when new management took over at The Parade-based firm.

Before that, since 2006 when the scheme – a high-risk investment in off-plan residential developments in Bulgaria, Croatia and Montenegro – was first set up, the Commission say that the relationship was “adversarial” and “confrontational”.

JFSC Director-General John Harris said: “There were problems and a lack of constructive relationship between Equity Trust and the Commission which lasted for too long and which got in the way of some form of settlement.

“That changed last year and there is now some element of redress. It is not total or perfect but it is better than most similar sort of settlements. Of course, some people will be unhappy with the outcome because investors have still lost significant amounts of money.”

The managing director of Equity Trust between 2006 and 2009 was former Jersey Finance chief executive and chairman of this year’s Island Games organising committee Phil Austin.

Mr Harris said: “Mr Austin was involved because he was the chief executive of Equity Trust during periods of time when these issues were extant but I’m not going to give you any more comment on that.”

Mr Austin was not prepared to comment either.

When asked who was to blame, Mr Harris said: “Equity Trust must accept a measure of responsibility and that is reflected in the substantial settlement offers that have been made. The Commission has also received some compensation from Equity Trust but that does not, in any measure, go to recovering the sum total of our costs, which are very significant over a nine-year period.”

Mr Harris added that the UK-based promoters must also shoulder some of the blame.

“There might be some people who think this was a fraud from the start but I don’t believe that’s true in this case,” he said. “I think what you are dealing with here is original good intentions, a very complex scheme in some very challenging territories and very adverse economic circumstances. No doubt all of these were compounded by the fact that these schemes were not administered as they should have been.”

“Yes, there is potential reputational damage to Jersey. You have 900 UK investors who have only received partial compensation so there is bound to be some fall-out. There have been a number of these types of schemes that have gone wrong over the years, and not just in Jersey, but even allowing for that, there must be some reputational risk to the Island – this was a very unfortunate scheme, which didn’t succeed. Clearly there were errors and problems which could have been avoided.”

No public money has been used in the investor settlement, which should conclude in the Royal Court later this year. Mr Harris declined to reveal exactly how much the nine-year investigation and legal action had cost the JFSC.