The Financial Conduct Authority has issued the final notices for GAM International Management and the former investment directory Timothy Haywood, detailing the conflict of interests that arose in their investment into Greensill.
In the notices issued today (30 March) the FCA published new details, along with previous known knowledge. These included that Greensill had offered GAM an equity warrant and a "fee ramp" in October 2016 around the time of its investment into the special purpose vehicle Laufer and issues around the creation of a new class of the supply chain finance fund.
Following these details Haywood said in a statement that he was "very sorry" and he has "taken on board key lessons and will strive to be a better investment manager in the future".
However, he added that he believes "the investment decisions taken by GIML, and by me on GIML's behalf, were indeed taken in the best interest of clients".
"This is ultimately evidenced by the return of all client monies to investors, firstly, in the GAM Absolute Return Bond fund range 3 years ago and, more recently, with the redemption in full of the GAM Greensill Supply Chain Finance fund," he said. "The performance of the underlying investments within these funds, upon redemption or sale, made that outcome for unitholders of these funds possible. Within those investments, every Greensill-related bond paid every sum due, on time and in full, during my employment at GAM."
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Special purpose vehicle investment
Two of the central conflict of interest problems detailed were around Haywood's investment into Laufer.
The FCA said this investment into the Greensill-owned vehicle was "distinguishable" from previous investments because it was the first time the funds "provided direct financing to a Greensill-owned entity".
The first detail highlighted was a "fee ramp" negation between Haywood and Greensill, which proposed Greensill would pay GAM $5m in fees if the assets in the dedicated supply-chain finance fund had not hit $1bn by March 2017.
In 2016, and before and after this investment, GAM Senior Management had expressed their disappointment to Haywood at the rate of growth of assets under management of the co-branded supply chain finance funds.
The Haywood final notice went on to state: "This unsolicited proposed fee ramp arrangement offered by Greensill created a conflict of interest between GIML and its clients, as the arrangement was stated to be for the benefit of GIML and not its clients and led to a risk that GIML may have been incentivised to invest client funds in the Laufer notes to serve its own interests as opposed to that of its clients."
The regulator continued that there was a lack of clarity about whether the fee ramp was in consideration of the investment, which created a conflict of interest.
The FCA also highlighted GAM was offered the option to purchase an equity warrant in October 2016, which would allow the firm to purchase a 12.5% stake in Greensill Capital for $125m. The regulator highlighted if this was part of the consideration for the Laufer investment then it would have created a conflict of interest as the investment fimr might be incentivised to invest client funds to serve its own interest.
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Class C shares
A further issue highlighted by the regulator was the creation of a new share class of the Supply Chain Finance fund in June 2017, a year after the launch.
The ‘C share class' was created to allow a company to invest in the fund, but only wanted to invest in their own receivables.
There were 24 trades in which GIML-managed funds operated as the initial purchaser before they were sold to the C class, and a loss was suffered on 19 of them for a total of $26,181.
The FCA said Haywood had failed to check the prices and ones from earlier days had been used.
They noted that while the share class was created "with the intention that the initial purchasers would receive a financial return", it created a conflict of interest for GIML between the company as its client and the clients within its other funds.
The regulator issued a notification of the fines of £9.1m for the firm and £230,000 for the manager in December last year. However, it held of releasing the detail through final notices, saying at the time there was "another party who is not a subject of the Final Notices may be affected by them".
Therefore, the FCA said it was required to consult with the other party and provide them with an opportunity to make representation prior to publication.
