Neil Woodford, the former star fund manager, has instructed the US law firm Brown Rudnick to represent him in a potential legal dispute with the Financial Conduct Authority (FCA), according to people familiar with the matter. The move signals that Woodford is preparing to fight any regulatory action over the collapse of his flagship equity income fund, which was suspended in June 2019 and later wound up, leaving thousands of investors unable to access their savings.
Background to the Dispute
The FCA has been investigating the circumstances surrounding the suspension of the Woodford Equity Income Fund, which had £3.7 billion in assets at the time of its suspension. The regulator has faced criticism for failing to act sooner, and Woodford himself has maintained that the suspension was a result of an “unprecedented” wave of redemptions following a series of poor performance figures. However, the FCA is reportedly considering whether to take enforcement action against Woodford for breaches of conduct rules, potentially including a fine or a ban from the industry.
Brown Rudnick, a firm known for its work in complex commercial litigation and regulatory matters, has been hired to advise Woodford, according to a report by The Times. The firm has a strong track record in high-stakes disputes, having represented clients in cases involving financial services and professional negligence. Woodford’s decision to engage a US-based firm underscores the seriousness with which he views the potential proceedings.
Legal Strategy and Implications
Legal experts suggest that Woodford’s choice of Brown Rudnick may indicate a strategy to challenge the FCA’s findings on procedural grounds, possibly arguing that the regulator’s investigation has been flawed or that it has overstepped its remit. The firm has experience in cross-border disputes and has previously acted against regulators in other jurisdictions. If the FCA decides to bring a case, it would be one of the most high-profile enforcement actions in recent years, given Woodford’s former status as one of Britain’s most celebrated fund managers.
Woodford’s reputation suffered a significant blow after the fund’s collapse, which also led to the closure of his investment firm, Woodford Investment Management. The fund’s administrator, Link Fund Solutions, has already faced scrutiny, with the FCA fining it £306 million in 2023 for its role in the mismanagement of the fund’s liquidity. That penalty was one of the largest ever imposed by the regulator, highlighting the severity of the failings identified.
Impact on Investors and the Industry
The potential legal battle comes as investors in the fund continue to await compensation. The fund’s collapse has been a major scandal in the UK financial services industry, prompting calls for greater oversight of illiquid assets held by open-ended funds. The FCA has since introduced new rules to limit the proportion of unquoted and illiquid investments in such funds, but the fallout from Woodford’s failure persists.
According to a report by the Financial Conduct Authority, investors in the Woodford fund have recovered only about 40% of their original investments so far, with the remainder tied up in unquoted companies that have proven difficult to sell. The legal proceedings, if they go ahead, could delay any further distributions to investors, as funds may be needed to cover legal costs.
What’s Next?
Neither Woodford nor Brown Rudnick has commented publicly on the engagement. The FCA has declined to confirm whether it is considering enforcement action, stating that its investigation is ongoing. Woodford has previously denied any wrongdoing, insisting that he acted in the best interests of his investors at all times.
Industry observers will be watching closely to see whether the FCA decides to proceed with a case, which could set a precedent for how regulators handle similar situations involving fund managers. For Woodford, the hiring of Brown Rudnick represents a clear signal that he intends to defend his reputation vigorously, whatever the cost.
