The FCA has finally stepped in, but will this help shareholders or just devalue their investment further?
The destruction of shareholder value at Home REIT has been horrendous. Over £853m was raised from shareholders. The latest published valuation of the REIT’s property portfolio is only £413m (as at August 2023) and the trust has net debt of around £144m (as at February 2024), so NAV is now less than £369m.
The background to this sorry saga is contained in this article by ShareSoc director Mark Bentley.
On 13th February 2024, the trust announced that the FCA had finally launched an investigation, nearly 15 months after allegations of serious issues including conflicts of interest, misinformation and bribery were first made. There is further commentary on the announcement in this article.
If it’s taken 15 months to decide to launch an investigation, how long will the actual investigation take? The FCA is currently 4 years into its Woodford Investigations; compare that with less than a year from discovery to successful prosecution by the US SEC in the FTX/Sam Bankman-Fried case.
To be fair to the FCA, the delay may have been caused partly by the National Crime Agency (NCA), who have been reviewing Home REIT since January 2023 before passing the file to the FCA and / or to the National Investigation Service (NATIS).
There exists a whole hierarchy of nebulous official bodies with impenetrable mandates that pass hot potatoes, such as Home REIT, between themselves. Add into the mix the SFO, LSEG and the CPS and overlay a ridiculous veil of unnecessary secrecy and you have all the ingredients for a multi-year delay!
Besides the delay, the investigation raises several other concerns.
Firstly, will the investigation detect and sanction the individuals and entities truly responsible for this sorry situation? The announcement merely says that the company is being investigated but the company itself doesn’t appear to really be the guilty party here.
Secondly, if misdeeds are found, will the FCA seek redress for shareholders? This happened in previous cases, such as that of Redcentric and, more recently, the widely reported Woodford case.
In the Redcentric and Woodford cases, the redress provided was not commensurate with investor losses. More worryingly, in the Redcentric case it was the company itself that was found liable, so shareholder redress was paid out of shareholder assets! Hardly a satisfactory situation.
It would make no sense for Home REIT itself to be required to pay compensation. That would worsen the situation and may punish newer shareholders not eligible for redress. The compensation would be paid from shareholders’ funds, reducing the value of outstanding shares.
ShareSoc believes that shareholder compensation should be sought directly from those entities and individuals responsible for the destruction of shareholder value.
Action by independent law firm Harcus Parker to recover shareholder losses is already underway. The firm states: “Harcus Parker is seeking to articulate the claim in a way which protects the remaining shareholder value in Home REIT.” FCA action may preclude civil action (or at least make its effectiveness much more difficult), as happened in the Woodford case.
ShareSoc urges the FCA to liaise closely with any law firms already pursuing claims for Home REIT shareholders, to obtain the best outcome for those shareholders. Furthermore, it seems likely that unregulated actors may have played a part, which suggests that the FCA should be working closely with the SFO in this case.
The FCA needs to fulfil the role set out on its own website: “Financial markets must be honest, competitive and fair so consumers get a fair deal. We work to ensure these markets work well for individuals, for businesses, and for the growth and competitiveness of the UK economy.”
I have no confidence in the FCA when it comes to orderly retail markets. Investors are going to see a poor outcome in a few year’s time. I have retreated from large parts of the retail market as the cost of investment is too high given the regulatory risk.