Split-caps pay £194m compensation

Investors who lost money following the split-capital investment trust scandal are to receive £194m compensation, the UK's financial watchdog has announced.

Eighteen investment firms involved in the sale of the investments agreed the compensation package with the Financial Services Authority (FSA). Splits were marketed as a low-risk way to benefit from rising share prices. But when the stock market collapsed in 2000, the products left thousands of investors out of pocket. An estimated 50,000 people took out split-capital funds, some investing their life savings in the schemes. The paying of compensation will be overseen by an independent company, the FSA said.

Further details of how investors will be able to claim their share of the compensation package will be announced in the new year. "This should save investors from having to take their case to the Financial Ombudsman Service, something, no doubt, that will be very welcome," Rob McIvor, FSA spokesman, told BBC News. Agreeing to pay compensation did not mean that the eighteen firms involved were admitting any guilt, the FSA added. Any investor accepting the compensation will have to waive the right to take their case to the Financial Ombudsman Service.

The FSA has been investigating whether investors were misled about the risks posed by split-capital investment trusts. The FSA's 60 strong investigation team looked into whether fund managers colluded in a so-called "magic circle", in the hope of propping up one another's share prices.

Firms involved were presented with 780 files of evidence detailing 27,000 taped conversations and over 70 interviews. In May, the FSA was widely reported as having asked firms to pay up to £350m in compensation. Mr McIvor told the BBC that the final settlement figure was smaller because two unnamed firms had pulled out of the compensation negotiations. Investors in these two firms may now have to take any compensation claim to the Financial Ombudsman Service or the courts.