3,500 Hargreaves Lansdown investors seek legal action over Woodford

Two law firms have been contacted by over 3,500 clients of Hargreaves Lansdown who invested in the collapsed Woodford Equity Income fund through its platform as they try to recoup losses ranging from 50-60% of their investment.

Slater and Gordon launched a legal case against Hargreaves Lansdown in October last year over the discount broker’s relationship with Woodford Investment Management; Woodford’s Equity Income Fund appeared on the discount broker’s Wealth 50 ‘best buy’ list right up to its suspension.

A spokesman for the company said: ‘since the news of this broke, we have been contacted by more than 1,200 people who had invested in the Woodford Equity Income Fund and that number continues to grow. What we are finding is that many people relied on the ‘best buy’ lists produced by Hargreaves Lansdown that consistently identified the Woodford Equity Income Fund as a good investment.

‘the ‘best buy’ lists produced by Hargreaves Lansdown that consistently identified the Woodford Equity Income Fund as a good investment’

Leigh Day said it has now received 2,500 enquires from Hargreaves Lansdown  clients about the fund: ‘We’ve now had around 2,500 enquiries from Hargreaves customers who have lost money from investing in the Woodford Equity Income Fund and we get more enquiries every day,’ a spokesperson said.

‘However, some people who have contacted us invested in a Hargreaves Lansdown fund that itself was invested in Woodford. Investors who invested via these funds will want to know why Hargreaves Lansdown waited so long to reduce their exposure when other fund managers had been warning of problems since May 2018’.

New information that emerged when investors had their money returned last week has strengthened the legal case for disgruntled investors seeking compensation; the lawyers will want to know whether the fund supermarket was aware of the problems at the fund while it continued to promote it on its Wealth 50 list, and also how the administrator of the fund, Link Asset Services, monitored it.

Speaking in the Telegraph for Leigh Day, Bozena Michalowska said around 25% of the fund remains unsold, which is a clear indication of the fund’s illiquidity: ‘Serious questions must now be asked about breaches of the FCA’s rules.’

The fund had a maximum allowance of 10% in illiquid holdings, and Ms Michalowska said this raises pressure on Hargreaves Lansdown:

‘Given the extent of illiquidity, we have to ask how much Hargreaves Lansdown knew about the trouble at the fund.  At what point did they realise something was wrong and why did they continue to recommend the fund to their platform’s users?’ she said.

‘Serious questions must now be asked about breaches of the FCA’s rules’

Karolina Kupczyk, of Slater and Gordon, told the Telegraph the confirmed losses of around 50% on the frozen holdings have not changed the legal case for investors: ‘It won’t affect the legal case we are looking into against Hargreaves Lansdown.

‘But this new clarity around the extent of write-downs is important information because customers are able to quantify their losses further – and therefore the potential damages they might be able to claim. Many customers will no doubt be shocked that losses are far greater than first feared.’

Ms Michalowska added: ‘Hopes for further capital distributions of a significant size, if any, look thin. Clearly, there is a strong discontent among investors who not only wish for compensation but want to know why this happened.  If investors had got all or most of their money back, then they would be less inclined to pursue a claim.’

Investors face losses ranging from around 50% to 60% depending on when they bought the fund and through which fund supermarket.

However, it was not just direct investors that are impacted – Hargreaves Lansdown’s own multi-manager funds were heavily invested in Woodford’s products

Earlier this month Citywire Funds Insider revealed that Lee Gardhouse and David Smith, managers of the £294m HL Multi-Manager Equity & Bond fund, sold a £4.9m stake in the Woodford fund in May last year; a month later withdrawals from the fund were suspended.

The sale reduced the managers’ stake in the fund, which had been the top holding at 9.6% of their portfolio’s assets, by around a fifth.

Hargreaves Lansdown declined to comment.