Freshfields advises New Star on case against FSA

Freshfields Bruckhaus Deringer is advising New Star Asset Management on a defamation claim arising out of the Financial Services Authority’s (FSA) investigation into New Star and others in the split-capital trusts case.

In a coup for the firm, Freshfields has won the work despite Olswang being New Star’s usual corporate adviser. Litigation partner David Scott is leading the Freshfields team.

New Star chairman John Duffield is contemplating suing the FSA for defamation following comments made by the FSA’s head of press, Rob McIvor on 18 April. Referring to New Star and 20 other companies involved in the split-capital investment trust fiasco, McIvor told the Daily Mail: “These people ripped off consumers.”

New Star is claiming the comments defamed it and the other companies involved, but the FSA says the statement was taken out of context. Freshfields is advising on the defamation aspects, despite the fact that the firm is not exactly known for its defamation practice.

The split-capital case centres on the FSA’s claim that the 21 investment trusts worked together in a “magic circle” to boost the asset values of split-capital trusts. A total of 50,000 investors lost money in split caps and the FSA wants the companies to pay compensation.

The FSA announced on 26 May that some of the 21 companies have agreed to mediation and are “now engaged in constructive discussions” to settle. It also said that a separate group of companies has held preliminary settlement discussions.

But the amount the companies have indicated they would pay in compensation does not meet the £350m demanded by the FSA, which has stated that it “does not intend to continue with these discussions”.

Enforcement investigations against those firms not taking part in mediation are continuing, with cases being referred to the Regulatory Decisions Committee in June.