Please click on the links below to go to the story in full
Investors in Rage, the collapsed computer games group, have increased the pressure on the company's advisers by highlighting
a series of fund raisings with a US bond fund, GEM Global High Yield Fund.
Private investors claim the transactions, the latest of which was March 2002, are further evidence that Rage was
in need of cash before a controversial £5.5m share placing and open offer in May 2002. The offer document for the
May share issue contains a loss forecast for the full year to June 2002 of £3.2m-£9.1m.
One investor said: "At the interim stage in December they made a £5.4m loss. So if they had any hope of meeting
the more optimistic end of their range the company would have had to trade profitably in the second half. If that
was likely to happen why did they need to raise cash from investors such as GEM in March?"
A shareholder action group has been formed to demand compensation from Rage's advisors, including Teather & Greenwood,
the company's broker, and BDO Stoy Hayward, its auditor.
Shareholders
who lost everything in the collapse of Rage Software are preparing to sue the company's stockbroker, Teather & Greenwood
and its auditor, BDO Stoy Hayward.
An action group has been formed led by Leon Kaye, a veteran of numerous investor action groups including those that
have pursued Equitable Life, Resort Hotels and split capital investment trust companies.
The shareholders have engaged lawyers and have written to solicitors representing Teather & Greenwood and BDO Stoy
Hayward demanding compensation.
Mr Kaye said: "We will certainly be issuing a writ in due course if we don't receive compensation."
Rage was a computer game software company that developed titles including games based on the Rocky character, played
in the films by Sylvester Stallone and a football game endorsed by England footballer David Beckham.
The action group claims that 8,000 private investors were misled by a prospectus that was issued by the company inviting
them to submit to a placing and open offer to raise up to £5.5m.
On page 30 of the document, which was issued in May 2002, there is a profit and loss forecast for the full year ending
in June 2002. That said the loss on ordinary activities before taxation and goodwill amortisation and impairment
would be no less than £3.2m and no more than £9.1m.
The action group claims that such a wide range was misleading as the company already knew by then what the full-year
loss was going to be. It eventually came in at the top of that range.
The group claims to have 500 members and Mr Kaye said it would be securing outside funding from a no-win, no-fee
financier to support its legal claim.
Teather & Greenwood last night said until it actually received a writ, it did not want to ay anything. However it
is understood that it strongly refutes any wrongdoing.
A spokeswoman for BDO Stoy Hayward said: "We haven't received a writ and we don't see any basis to what they
are saying. If we do receive a writ we will defend it vigorously."
An
action group representing 500 aggrieved small shareholders in collapsed computer games group Rage is preparing
to sue broker Teather & Greenwood and accountants BDO Stoy Hayward.
Solicitors Leon Kaye have consulted counsel and believe they have a case to demand compensation from the two City
firms because for their role in a £5 million capital-raising by Rage. About 7000 mostly small punters lost everything
when Rage went bust just eight months after tapping them for fresh capital in May 2002.
"The intention is that we will be issuing a writ," said Leon Kaye, principal of the eponymous firm, which specialises
in class actions and has gained several big City scalps in the past. "We believe we have a very strong case." The
aim is to sue both Teather and Stoy Hayward as well as the former Rage directors.
At the time of the capital-raising Rage claimed that the £5 million sought would be enough to see the company through
its problems, a promise that proved unfounded.
They also issued a forecast that losses for that year would be around £3.2 million to £9.1 million. Kaye alleges
this was deliberately misleading because by then the directors and their advisors knew that the loss would be at
the very top of that range. "Investors were misled," said Kaye, who has also been attempting to force Teather
to disgorge the names of its own private clients who bought into the Rage capital-raising.
About £2.5 million in the new share issue was contributed by T&G clients. But their identities were concealed behind
nominee accounts.
Small shareholder Nick Polzone of Whetstone invested £3000 in Rage shares. "It's an outrage. I'm a financial
advisor and just to sell anyone an insurance policy you have to dot the i's and cross all the t's. These guys have
engaged in corporate theft," he alleged.
Rage was for some time a huge favourite with small investors as it signed up big names like David Beckham and former
SAS hard man and author Andy McNab to lend their names to its computer games. But it was swamped by costs as it attempted
to transform itself from pure developer to full publisher and receivers were called in in January.
Kaye has notched up several compensation coups on behalf of investor group, including actions against Guinness Mahon
in 1996, Resort Hotels in 1999 and Equitable Life in 2001.
A Stoy Hayward spokeswoman said: "There is no basis to the claim and we intend to defend it very vigorously." Teather
said it had followed all the rules and relied on figures provided by the directors and Stoy Hayward.
The world of split level investments - once considered a safe repository for pension nest eggs - is about to be assailed by the lawyer whose legal challenge helped to bring Equitable Life to its knees.
London solicitor Leon Kaye has set up an action group for victims of the trusts including pensioners who have lost a large slice of their retirement cash. Split level investment trusts offer different classes of shares with varying risk and reward profiles tailored to investor needs. They were often sold as minimal risk investments producing high income, but some have lost up to 98% of their value over the past year. Some dividends have been reduced sharply.
Many funds launched in 2000 invested heavily in other split level trusts, an arrangement of cross holdings which became known as the "magic circle". When share prices fell, the circle turned vicious. Aberdeen, BFS and Exeter were among the main promoters of these trusts.
"We were first consulted by clients whose independent financial advisers sold Aberdeen Progressive Growth, a unit trust whose funds go into investment trusts including large slices into split trusts also managed by Aberdeen," Mr Kaye said. "The literature says the risk to capital is low but these units have lost half their value over the past year. That led to inquiries from other split level investors who lost money. We have also written to shareholders in the worst hit funds."
Mr Kaye has decided not to take on IFAs but go for the fund managers whose material the advisers passed on to private investors. He will allege breach of contract and misrepresentation as well as mis-selling.
The government is considering regulating the embattled split capital investment trust sector, where many private investors have each lost thousands of pounds in what they were told were low-risk investments. Lord McIntosh of Haringey, the government’s deputy chief whip in the House of Lords, said the government was concerned about a sector that is in danger of collapse from a complex web of cross-shareholdings and debt.
Split capital trusts currently fall through gaps in the regulatory system and are not fully supervised by the Financial Services Authority, the chief City regulator. But Lord McIntosh, who speaks on Treasury matters, said yesterday: "The coverage of the FSA is progressively increasing. This could include split capital trusts if necessary. If we find existing powers are not enough and that there is potential for abuse, then we are prepared to consider amending the regulated activities order."
Regulation by the FSA could mean closer scrutiny of the sector, where a close-knit "magic circle" of split managers invest in each other's trusts. The FSA is looking into allegations that these cross-shareholdings were used as a way of boosting share prices by buying each other's shares.
Split capital investment trust companies have been sold to tens of thousands of investors as a method of achieving a high income or as a tax-efficient way of planning for long term expenses, such as school fees. Such trusts are collective investment vehicles with more than one class of share - some paying income, others paying a pre-determined capital sum at a preset date.
However, some took on high levels of debt. When stock markets fell, the impact of falling stocks was magnified through the trusts that invested in each other. Share prices of trusts have fallen in some cases by more than 70 per cent. About 40 trusts have now cut or suspended dividends and some have breached banking covenants. Quilter Global Enhanced Income this month became the first trust to declare itself insolvent and asked for its shares to be suspended.
The FSA is examining allegations of mis-selling across the sector. However, concern is mounting that investment trusts are not fully regulated by the FSA and that shareholders who bought into trusts without independent investment advice lie outside the FSA’s protection and compensation schemes.
An action group has been set up by Leon Kaye, a London-based solicitor, to fight for compensation for shareholders, who in some cases have lost 98 per cent of their money.
Political pressure has been building for the government to take a look at potential abuses in the sector. Lord Newby, Liberal Democrat Treasury spokesman, has been among those pressing the government to regulate splits.
Split capital investment trust managers could be facing legal action, with a solicitor investigating whether investors have a claim for mis-selling.
Leon Kaye, of London law firm Leon Kaye Solicitors, is trawling prospectuses of both unit trusts exposed to split caps and the trusts themselves to see if the risk levels of the products were clearly explained to investors.
Many people bought zero dividend preference shares - for school fees planning, for example - in the belief that the products were low risk. As yet, no zero has ever failed to pay out the predicted amount at the set date.
However, the cross-holding of some split caps in other split trusts, coupled with their high gearing, has sent the values of some of these investments plummeting as stock markets have fallen.
A number of trusts run by Aberdeen Asset Management, BFS, Gartmore and Jupiter, among others, have recently run into difficulties. Framlington 2nd Dual is seeking shareholder approval to buy back 14.99 pc of its issued ordinary income shares and its zero shares, it said on Thursday.
Mr Kaye is already working on behalf of a handful of clients, and hopes that others will come forward. He said: "We are investigating the whole issue of risk and whether these products can fairly be described as low risk. We want to build a head of steam to get a case. One gets a feeling for these things, and the feeling is there is something wrong here."
Lord Newby, the Liberal Democrat Treasury spokesman, asked in the House of Lords last week whether investors in splits could be entitled to compensation for mis-selling. He backed Mr Kaye's actions. He said: "I would support any reasonable action to get redress for those people."
The Financial Services Authority is already investigating whether there was collusion between investment trusts to prop up prices in the sector by cross-investing in each other’s funds. Aberdeen said on Thursday that the group was performing ahead of budget expectations, although sales of retail funds have fallen 45pc in the five months from October compared with the previous year. It is waiving fees on certain splits which will result in a reduction of annual fee income of £2m compared to budget.