Financial Scandals and Frauds

LONDON (ShareCast) - Attempts to sell failed structured products distributor Keydata have faltered after administrator PWC said £103m of funds backing three income bond products may have been "misappropriated."

Dan Schwartzmann, a partner at PwC, said income and redemptions on the bonds had been paid by the company rather than from the underlying investments, which appeared to have been liquidated.

The products affected are Keydata's Secure Income Bonds 1, 2 and 3. PwC said it had discovered that income payments had not been deducted from Keydata's underlying Luxembourg-domiciled investment vehicle, known as SLS Capital, since October 2008.

Dan Schwartzman, joint administrator and partner, said: "We have found that the company was funding the coupons and redemptions. The company was using its funds, but you would expect to see the funds where investments are to be used. It's from there that you would expect the payments to be made."

Keydata's directors issued a statement in response saying that they "only became aware this weekend that the underlying assets of SLS appear to have been liquidated".

Other assets and structured product-backed schemes administered by Keydata were not affected and remained safe, PWC said.

Reports today also revealed that the three directors of Keydata paid themselves £7.9m over the past two years.

The three men, Stewart Ford, chief executive, Craig McNeil, company secretary, and Mark Owen received £3.7m in the year to September 2008 and £4.2m in 2007.