Law firms seeking to recoup money for investors who were burned by the collapse of the Woodford Equity Income fund have been shifting their focus from Hargreaves Lansdown to the fund’s authorised corporate director Link Fund Solutions.
Initially Hargreaves had been in the crosshairs as thousands of disgruntled clients who invested in Neil Woodford’s former fund via its platform hopped on board various legal claims.
“When people first started talking about legal redress for Woodford, the focus was very much on Hargreaves Lansdown, which is entirely understandable,” says Robin Powell, editor of the Evidenced-Based Investor.
“Hargreaves certainly wasn’t the only party at fault, but it was by far and away Woodford’s biggest cheerleader.”
Around 292,000 Hargreaves customers had exposure to the fallen fund directly or indirectly via its multi-manager range. Almost a third of the fund’s £1.4bn net capital losses between 1 January 2019 and 31 March 2020 were borne by Hargreaves clients.
Difficult to prove HL clients relied on Wealth 50 alone to invest in Woodford Equity Income
But the law firms that have made the most progress have turned their attention to Link’s role in the Woodford debacle.
Leigh Day, which initially had been looking to bring a case against platform giant Hargreaves Lansdown for its championing of Woodford’s funds via its best buy list, announced last week it was one step closer to launching a case against Link after securing funding and claimant cost insurance.
Harcus Parker, which also has its eyes on the ACD, is self-funded and appears to be furthest along in the process, telling Portfolio Adviser it could take Link to court in a matter of months.
“We always felt that the claim against Link was the better one,” Harcus Parker senior associate Dan Kerrigan tells Portfolio Adviser.
From a legal perspective Kerrigan says that he preferred the more cohesive claim against Link to one in which it might be necessary to prove each claimant’s reliance on Hargreaves when deciding to invest in the fund.
There’s also the “messiness” of many Hargreaves clients having invested in the fund indirectly via the £7bn HL Multi-Manager range.
Claim against Link works for any Woodford investor
By comparison, the case against Link appears “a lot cleaner and more straightforward”, according to Kerrigan.
“There are rules governing the management of collective investment schemes. We allege that Link quite clearly breached those rules and breaches of those rules are quite clearly actionable under the Financial Services and Markets Act.
“Most people are of the view that the fund failed due to the management of its liquidity and that was exacerbated by the questionable valuations (which were Link’s responsibility) of a number of these unlisted assets.
“There’s no dispute that Link had a responsibility to manage both liquidity and valuations. The allegation that they fell short of standards in doing so is the claim in a nutshell.”
Crucially the case against Link is “strong” because it works for any Woodford investor, Kerrigan says.
“It’s a generic argument in that it applies to an institution that’s put in millions just as much as it applies to a small retail investor who’s invested a smaller (though to him or her still significant) amount.”
Link could be in court before the summer
Of the five firms mounting challenges against the parties involved in the Woodford Equity Income scandal, Kerrigan is confident Harcus Parker’s case is the “most advanced” of the claimant groups.
Its team led by founding partner Damon Parker and lead counsel Nicholas Vineall QC of 4 Pump Court, who previously helped the firm pursue Link’s predecessor Capita Financial Managers over the Arch Cru collapse, has amassed 6,000 clients.
In July they sent a Link a pre-action letter, which is required to trigger the litigation process, to which the ACD has since responded. Though Harcus Parker had vowed to bring Link to court by the end of 2020 now Kerrigan says they hope to launch their multi-million-pound class action before the summer.
“We hear anecdotally that none of our colleagues in other firms has sent a letter of claim as yet so against that backdrop we’re quite a way ahead of everybody else.”
A spokesperson for Link tells Portfolio Adviser it is “aware of recent media coverage but no legal proceedings have been served on LFS”.
Leigh Day solicitor Kamran Vojdani says he and head of consumer law Bozena Michalowska-Howells have been working with counsel and a team of experts in financial analytics on finalising a letter of claim which would be sent to Link in the coming weeks.
“If Link is unwilling to resolve the dispute, we will issue court proceedings on behalf of our clients once we receive Link’s reply to our letter, which we estimate will be in about four months from now,” Vodjani says.
Leigh Day is currently representing around 4,500 clients in its claim against Link.
Woodford campaigns weigh in
It’s perhaps not surprising that the two law firms seemingly furthest along in the process have each received backing from separate campaigns for Woodford Equity Income investors seeking redress for the fund’s failures.
Powell expects Harcus Parker’s claim against Link to be the first to go to court. “Predicting the outcome of legal actions like these is extremely difficult. But from what I’ve seen of the Harcus Parker claim against Link, it does appear to be very strong.”
Leigh Day meanwhile has received backing from Sharesoc. This marks the first time the not-for-profit retail shareholder body has endorsed a legal claim.
When asked what about the Woodford blow-up convinced Sharesoc to get involved director Cliff Weight points to the high-profile nature of the case. “It’s big. It’s messy. It’s a scandal. A lot of people have lost a lot of money.”
Weight says Sharesoc considered all five firms pursuing claims in connection with the Woodford Equity Income blow-up and was struck by how Leigh Day’s counsel put forward its arguments “very, very carefully”.
Its status and reputation also helped tip the scales as did the fact it will act on a ‘no win, no fee basis’, meaning clients wouldn’t be charged if the claim is unsuccessful. “We think that’s quite important,” says Weight. “They’ve already lost money.”
If Leigh Day’s claim is successful, it can take up to 30% of clients’ winnings to pay for the costs of litigation.
Harcus Parker is also acting on a ‘no win, no fee’ basis and clients have agreed it can take 35% if the claim is successful. Kerrigan says in real terms it may be less “as we will seek to recover as much of our costs from the other side as we can”.
Aside from helping affected investors get their money back, Sharesoc is hoping the debacle will force regulatory change.
The fact Woodford breached the 10% limit on holding unquoted companies on multiple occasions and his illiquid holdings listed on the Guernsey stock exchange were “deemed to be passing the regulatory test” indicate “there’s something wrong with the regulations”, says Weight.
“People should have acted much faster. The FCA had a look at this at the beginning of 2018 but they didn’t actually stop the disaster happening.”
Could Hargreaves still be taken to court over the Woodford scandal?
Commercial litigator Wallace thinks it would be premature to discount action against Hargreaves at this stage.
The firm, which is partnering with RGL Management, announced last May it was on the verge of launching a claim against the D2C platform. Specifically, it was looking into Hargreaves’ continued promotion of Woodford’s fund via its Wealth 50 buy list despite senior management knowing about the fund’s liquidity issues.
“Hargreaves Lansdown certainly does have a case to answer in parallel to the action against Link and our group is proceeding on that basis,” partner Alexander Weinberg says.
“We are aware that other groups have shifted their attention towards Link, but we consider that this prematurely rules out action against Hargreaves Lansdown, against whom we consider investors have a strong claim.
“We expect there to be material developments in our group’s claims against Hargreaves Lansdown and Link shortly and we are working closely with RGL and leading counsel in that regard.”
Weinberg did not specify the size of Wallace’s claimant group but says it includes affected Hargreaves customers.
Nelsons, which was the first firm to extend the scope of its investigation from Hargreaves to Link, says it is still pursuing claims against both parties.
A spokesperson tells Portfolio Adviser it was investigating funding and after the event insurance and “remains positive” it will be available.
Powell says he remains “hopeful” that regardless of what happens with Harcus Parker’s claim there will be a separate action against Hargreaves.
“My view is that there is a very strong moral case for Hargreaves to compensate, voluntarily, all those clients who’ve been affected,” he says. “But given its lack of contrition so far, I rather doubt that will happen.”
Hargreaves declined to comment.