The frozen assets of former WealthTek boss John Dance could be used to help clients of the defunct firm, administrators have indicated.
A fresh update on the affairs of the Tyneside wealth management firm, which was shut down last year amid alleged regulatory breaches and potential fraud, includes the suggestion that recoveries made by the Financial Conduct Authority (FCA) in its investigation into the firm and Mr Dance will be used to benefit clients and possibly creditors.
In their progress report, joint administrators from insolvency specialist BDO acknowledged the hardship and distress caused to WealthTek's former clients who number about 1,320. Since the financial watchdog ordered the closure of WealthTek in April 2023, administrators uncovered an £81m shortfall in client money and assets, and those former clients have been left in limbo, unable to recoup their money. The administrators have estimated that total claims from the firm's unsecured creditors could stretch to £88.8m.
Following the closure of WealthTek, the FCA got a worldwide freezing order on around £40m of assets belonging to Mr Dance, who founded the firm. Later, the watchdog obtained a Restraint Order over the assets, replacing the original order and preserving them for possible future confiscation should their be a criminal conviction.
Earlier this year, a High Court judge granted the FCA a 12-month pause in its civil case against Mr Dance, allowing it to focus on a criminal investigation. The FCA told a court that Mr Dance's suspected misconduct is potentially “one of the largest frauds perpetrated by an FCA regulated individual at an authorised firm”.
Statements from FCA officials also allege that Mr Dance funnelled about £49m of client money to his personal bank account and other companies with which he is associated. The process of returning client assets has been frustrated by issues with the accuracy of WealthTek's books and records. BDO say it has taken a prolonged period of time to identify clients' entitlements.
Now, the insolvency specialists have received the first payment of £26.69m from the Financial Services Compensation Scheme (FSCS), which has said it will help former WealthTek clients. That sum will support 865 clients, with further funds are expected to come from the scheme as more clients are confirmed to be eligible.
BDO said: "Whilst it was the joint special administrators' (JSAS) original intention to provide the FSCS shortfall compensation alongside the return of client assets and/or client money, the JSAS appreciate that not all clients are yet in a position to receive the return of their client assets. The JSAs also understand the distress that has been caused to clients as a result of the LLP's failure and clients' inability to access their assets for a prolonged period of time.
"To enable clients to access their FSCS shortfall compensation as soon as reasonably possible, the JSAs therefore consider it appropriate to offer clients the opportunity of receiving their FSCS compensation prior to the return of their client assets."
