Quotes - 2005

• “Reverse Santa. And so to two pantomime villains whose performance never fails to disappoint over the festive season.
  First comes Gordon Brown in his role as Reverse Santa………….
  
  And now, who’s this trying to sneak back up the chimney? It's Equitable Life's very own Vanni Treves, fresh from delivering a personal Christmas turkey to members.
  
  Treves reckons they should share the blame for his £45m legal cock-up on the auditor-and-director-suing front because most welcomed his initial plan to go to court. No mention of the billions they'd been led to expect, of course. Nor the clear-cut legal opinion they were told he'd secured.
  
  Said members are now clamouring for belated sight of said legal opinions. But Treves is acting coy. Maybe he fears ending up on a slowly turning spit come Christmas Day?"
  
  Liz Dolan Sunday Telegraph 18 December 2005

• “I will communicate very openly. This is our Society and members are entitled to know everything significant about how it is run unless open disclosure would be commercially damaging. This is what I understand by “mutuality “and I say “our Society” intentionally.
  
  An open dialogue with policyholders will start…………
  
  Many of you will want to know my priorities. The first I hope is already clear. I look forward to an atmosphere of trust and transparency between the policyholders and our Society………
  
  In parallel, a new senior management and Board needs to be put in place. I am glad that Charles Thomson has agreed to take over as Chief Executive today and to join the Board. Charles came to the Society in January from Scottish Widows where he had been Deputy Chief Executive. He is greatly respected in the insurance industry, experienced, wise and approachable…………
  
  We are working hard on the appointment of new non-executives Directors. We received many nominations, all of which will be carefully considered. The Board must be representative of policyholders, trusted by them and have the necessary mix of professional experience and disciplines without being too big. Getting it right is vital and will take time………….
  
  By then we will have made substantial progress with the preparation of the possible compromise between different classes of policyholders. The position as I see it is this: the with profits fund is intact and solvent…………..
  
  A compromise agreement between policyholders with guaranteed annuity rates and those without them will allow us to stabilise the GAR costs and will trigger a further, large payment from Halifax. The combination of these should restore the investment freedom of the fund.
  
  I have been entrusted with a difficult job of great importance. I will give it all my effort. We should all be clear however that I can and will only do it for so long as I have the support and consensus of policyholders…………………
  
  Letter from Vanni Treves to all policyholders 1 March, 2001

• “Suffer the poor policyholholders. After five years of turmoil, uncertainty and, in many cases, hardship one might have thought that Equitable Life policyholders have suffered enough. They have been ill-served by regulators, abandoned by the government and left in limbo by the Parliamentary Ombudsman……..
  
  Now that the legal cases are out of the way, chairman Vanni Treves and chief executive Charles Thomson believe they have an exit pass. They are well on the way to parceling out the remains of Equitable to a series of buyers……………………..This carve up begs a number of questions…….…..If the great break-up is to take place, policyholders have a right to know much more about the costs and choices. Some estimates put the potential legal and advisory fees as high as £50m – yet another hit for policyholders and retirees.
  
  But the sell-off is not the only option. The company could continue to run as a closed fund, largely invested in the safety of bond markets. It could have opted for the more adventurous solution by unitising its fund and heading back into equity markets, which over time yield the best returns. The suspicion must be that Treves is resisting these possibilities because he wants out as soon as possible.
  
  In the days before the Financial Services Authority – when the governor of the Bank of England was still the eyebrow which counted in the City – you can bet your life that one of the good would have been drafted in to take on a leadership role and “do the right thing”.
  
  Now, policyholders must rely again on the FSA which has failed them three times. It poorly supervised Equitable in the period leading to its closure. Its disciplinary action against Equitable executives was flimsy and it did nothing to advance the case for compensation.
  
  Callum McCarthy and his FSA team have a solemn duty to make sure that any sale that takes place is properly scrutinized and does not deprive policyholders of what little they have left.”
  
  Alex Brummer City Editor of the Daily Mail 3 December, 2005

• “Equitable's former directors may be able to recoup legal costs.
  
  At least one of the former Equitable Life directors, who has settled the multi-billion pound litigation brought by the mutual against 15 former board members and its auditors, could get back some costs if negotiations with other directors result in the repayment of legal expenses…………………….
  
  Former directors involved in these negotiations - seven of whom were represented by law firms acting on success-related "conditional fee agreements" - are understood to be pressing to have at least some of their costs repaid by the society. By contrast, the deals already secured were done on a "drop hands" basis, with each side agreeing to bear its own legal costs…………………….
  
  However, it seems that at least one of these agreements could make provision for some costs to be repaid if the negotiations result in a deal that sees the society repay some of the remaining former directors' legal costs. Equitable declined to comment yesterday, citing the continuing litigation.
  
  If no agreement is reached with the remaining former directors in the next few weeks, the parties are due back in court on December 12, when they are due to make closing submissions before a judge rules on the long-running and controversial litigation. All the former directors and E&Y have strenuously denied negligence and breach of duty.
  
  The move comes as Equitable considers a break-up of the troubled mutual, which could lead eventually to the jettisoning of the 250-year-old name. This is one of several options believed to be under consideration by Lexicon, the specialist insurance investment bank that Equitable has appointed. The outstanding litigation would also have to be resolved first.
  
  Prudential, the UK's second-largest life assurer, is understood to be interested in Equitable's £7bn book of annuities………..
  
  Sources in the market for buying and selling life assurance funds that no longer sell new policies pointed out that a sale of Equitable's £10bn closed with-profit fund, which includes with-profit annuities, could prove difficult because the fund would need to demutualise…………………….
  
  Andrea Felsted and Nikki Tait in the Financial Times 28 November 2005

• Some GOOD news!
  “Equitable Life victims given new hope with European inquiry: The battle for compensation for Equitable Life policyholders has been given a boost after it emerged that a European parliament "committee of inquiry" is to investigate the scandal.
  
  More than 200 MEPs have already signed a petition proposing an investigation into the debacle, in which a million people saw the value of their retirement savings and investments slashed.
  
  An inquiry can only be invoked if at least a quarter of all 730 MEPs call for it. Campaigners from EMAG, the Equitable Members' Action Group, said yesterday that the levels of support "should now make the inquiry a certainty".
  
  That could put fresh pressure on the UK government, which has resisted calls to compensate victims. There were indications yesterday that some MEPs may support taking the UK government to the European court of justice. The official Penrose Report into what went wrong revealed that Equitable's former management had engaged in dubious financial practices, but also highlighted a number of failures by City watchdogs. These contributed to a million investors - an estimated 15,000 of whom live in Ireland and on the continent - losing out to the tune of £4bn, according to campaigners.
  
  Two months ago, EMAG representatives addressed members of the European parliament's petitions committee in Brussels. Yesterday, a delegation of MEPs from the committee met EMAG during a visit to London, and passed on the news about the committee of inquiry.
  
  Paul Braithwaite, EMAG's general secretary, said the chairman of the petitions committee, Marcin Libicki, indicated the European parliament would seek to resolve the problem either through the European court of justice or through a compromise with the UK government. The inquiry team is likely to be made up of a cross-section of MEPs, though it is not yet clear when it is likely to launch its inquiry.
  
  Mr Braithwaite said it was encouraging news for long-suffering policyholders that MEPs were keen to take action and contrasted this with the British establishment, which had "spent six years sweeping it under the carpet".
  
  Rupert Jones in The Guardian 10 November, 2005
  
  Also, Andrea Felsted in The Financial Times 11 November:
  The Equitable Members Action Group, an independent association of Equitable policyholders, has claimed that its petition to the European parliament has gained the backing of more than 200 MEPs, making the creation of a special inquiry committee to look into its allegations likely. EMAG said that in September the parliament's petitions committee had proposed setting up a special inquiry committee to look at EMAG's allegations that the UK government failed in its regulatory duties. The committee can only be established with the backing of more than a quarter of the 730 MEPs. EMAG said their support "should make the inquiry a certainty."

• “Equitable ready to throw in the towel
  THE battered board of mutual insurer Equitable Life is ready to throw in the towel in its disastrous legal dispute with a number of its former directors.
  
  Chairman Vanni Treves has drawn up a blueprint for settling the cases - even though this will mean writing a cheque for around £10m to cover legal bills run up by the former bosses, as well as £30m for Equitable's costs. The move is likely to enrage customers and to produce renewed calls for the heads of Treves and chief executive Charles Thomson.
  
  It means policyholders will be forced to hand over yet more money for expensive lawyers acting for the very directors who presided over the ruin of victims' retirement plans.
  
  Treves, however, wants to draw a line under the ill-starred legal action. He has endured a series of humiliations after the crumbling of multi-billion pound lawsuits against 15 ex-directors and former auditor Ernst & Young……………….
  
  A settlement with the remaining nine former board members would represent a total capitulation by Treves and Thomson. Most are on 'no-win, no-fee' arrangements - a factor in their refusal to pay their costs………………..
  
  Treves is keen to settle the cases before the court action re-opens on 12 December, but the timing of any moves is not yet clear. The Equitable Members Action Group wants an extraordinary general meeting to force the resignation of Treves and Thomson…………
  
  Ruth Sunderland in the Daily Mail, 3 November, 2005
  
  See also, James Moore in the Daily Telegraph

• From the select committee on Public Administration on 20 October, 2005 evidence from the Parliamentary Ombudsman, Ann Abraham:
  
  Q10 Mr Burrowes (Tory MP): In the context of many of your recommendations not being fully accepted, particularly the Debt of Honour report and tax credits, and wanting to look and change and become more efficient, where would you see the problem? Is the problem the growing resistance from the Government in terms of accepting these recommendations?
  
  Ms Ann Abraham: First of all, can I say that I do not think that the Government has not accepted many of my recommendations. I think the Debt of Honour report is highly exceptional. That is one of the reasons I laid it before Parliament. In my memorandum I have invited the Committee to reflect on the Government's response because I think constitutionally it is significant and it is highly exceptional. With tax credits, I have read Mr Varney's evidence to the Treasury Sub-Committee last week and I am still unclear about the Revenue's position in terms of my findings in that report and we are in discussions. There are some very clear and direct statements made, but, in dialogue with the Revenue, I am not sure that the situation is entirely clear. What I would say is that it is of huge concern to me to see indications that the Government may be picking and choosing which of the Parliamentary Ombudsman's recommendations it wants to accept. That is a matter for this Committee and obviously I look for and need the support of this Committee in that respect. I will have been in post for three years next month. It is only in very recent months that I have seen any indication of the Government's reluctance to accept my recommendations. I have put the access to official information cases to one side as being a particular category, but these cases are significant and, I have to say, it is not a habit I would like to see the Government getting into and I am sure the Committee would not either.
  
  Q11 Mr Burrowes: Would you say you lack teeth as the Ombudsman? Would you give us your views on whether there should be an additional power to enforce those recommendations?
  
  Ms Abraham: I think you raise a very important and very timely question. I have been asked by this Committee before whether I felt that I needed something more than a power to recommend. In response to that in the past I have said that given the acceptance rate for recommendations is as high as it is, 99.99%, then I do not see the need for that. If that were different and started to change then I would take a different view.
  
  Read the uncorrected transcript of the 45-minute session here.

• Extracts from a letter to the Honourable Mr Justice Langley:
  “EMAG has purchased, at considerable expense to our members, the daily transcripts. You will appreciate how very hard it has been to follow the detail in the trials without our having access to the witness statements and bundles.
  
  As early as 8 April 2005, EMAG wrote to ask, in particular for copies of Mike Arnold’s statements, which were then 360 pages long. We were accorded a quite extraordinary unsigned response to that request from Herbert Smith, dated, 21 April 2005, essentially telling us that no cooperation would be forthcoming from them (copy enclosed). I have since observed during the trial that several solicitors and Mr Headdon have experienced similar high-handed and contemptuous responses from Herbert Smith.
  
  More than two weeks ago, on 10 October, 2005, Herbert Smith received from EMAG a polite and, as we understand to be the case, an entirely reasonable letter (also enclosed), requesting for a copy of the much redacted witness statement of Mr Mike Arnold introduced that day, plus the statements of both Mr Dumbreck and Mr Cryan, whose testimony was discussed extensively in the cross-examination of Mike Arnold by Mr Headdon. Herbert Smith has not replied to or acknowledged this letter in any way.
  
  EMAG, therefore, asks you to intercede and either instruct Herbert Smith to comply forthwith or we request that Peter Lane furnish us with the materials requested.
  
  We are conscious, from press reports, that the Society may be about to settle all the remaining claims. However, even if that does happen before you give a judgement, we believe that the documents, having been entered as evidence and discussed in open Court could and should now be available in the public domain on demand.
  
  We ask for your help and regret the need to have to ask.
  
  Paul Braithwaite 26 October, 2005

• “Equitable cuts claim against former directors
  
  In a statement, Charles Thomson, chief executive, said the decision was a "pragmatic" one. "This will speed up the process and reduce overall costs," he said. But the announcement was greeted with surprise and some derision by some of the 11 former directors and their lawyers, who said they were increasingly baffled by the society's legal tactics.
  
  "I'm astonished - it's a shambles," said Philip Vaughan, partner at Simmons & Simmons, the law firm that is advising Jennie Page, one of the former non-executive directors.
  
  Tim House, at Allen & Overy, which is acting for six former non-executives, said: "More than £1bn has fallen off the wreckage of their case. The question is why now?"
  
  The withdrawal of another substantial tranche of the society's claim could re-ignite questions from policyholders over the way the society and its lawyers have conducted the controversial litigation. There has already been anger that the society has thrown away £30m on legal costs without recovering anything, prompting calls for Vanni Treves, Equitable's chairman, to resign.
  
  The claim, which is now being abandoned against the 11 former directors, is the "lost sale" claim. ……………..
  
  But this marks the third time Equitable has dropped a large part of its case against one or more defendants in the course of the litigation; moves that open the way for the defendants to ask for the return of legal costs that they have spent on these elements of the case………
  
  In July a similar lost sale claim against Ernst & Young, the society's former auditor, which Equitable was suing for alleged negligence, was also abandoned. The two parties settled the remaining elements of the dispute several months later on the basis they would pay their own legal costs……………..
  
  As the directors' lawyers pointed out yesterday, they explicitly asked about the fate of the lost sale claim against the directors when the similar claim against E&Y was dropped, and were assured by Equitable that it would be pursued. "Nothing has changed …… . Why didn't they do this then if they wanted to save costs?" said one.”
  
  Financial Times, Nikki Tait,Law Courts Correspondent. October 18 2005

• “Equitable policyholders deserve a change from litigious leadership. EMAG disagrees with the conclusion of your editorial ("Time for Equitable Life to call a halt", October 1) that Vanni Treves and Charles Thomson should stay. For more than four years, policyholders have suffered from their ill-judged approach that applied legal solutions to everything, enriching lawyers by the best part of £200m.
  
  The Section 425 compromise was railroaded through and did not deliver the promised benefits. After a U-turn, annuitants have suffered income cuts of more than one-third. The board has refused to back Emag in holding the government to account via European action, yet this now looks encouraging. The existence of embedded contractual promises dictates that the fund can no longer invest in equities, thus missing out on stock market rises. That should have been addressed four years ago.
  
  Most of the boasted increased solvency came from adding back provisions set aside for legitimate mis-selling claims that have to be "seen off". Since 2001, policyholders have trusted in the "billions" Mr Treves said would flow from his legal actions, the end game seems to be to parcel-off Equitable at any price.
  
  There are seven other members of the board. One wonders: what are they for?”
  
  Financial Times letters page 8 October, 2005, from EMAG’s Paul Braithwaite.
  
  See the FT leader article (1 October) that this letter rebutted.

• “ANYTHING BUT EQUITABLE: After years of misery and rancour, the Equitable Life debacle is over, bar the shouting. But it is not the only City catastrophe in which the company’s boss, Vanni Treves, has played a part.
  
  A SENIOR lawyer friend of mine names different add-ons to his sumptuous country home after his best pieces of business. So, there's the conservatory paid for by the litigation from a City fraud, the swimming pool after a Department of Trade and Industry inquiry that lasted for years. You get the picture. Doubtless, somewhere in Berkshire, Oxfordshire and Surrey, there will soon be paddocks built complete with ponies called "Equitable" and "Vanni".
  
  ………..Equitable joins the great British board game of shame, where the little man, through no fault of his own, has landed on the wrong square at the wrong time, nobody has gone to jail and the lawyers have collected substantially more than £200. To Equitable can be added Maxwell, Shell, Lloyd's of London, Cable & Wireless, Blue Arrow, Independent Insurance, Aberdeen - the list goes on and on.
  
  ………...US attorneys, when they come to the UK, scratch their heads in disbelief. John Moscow, the Manhattan lawyer who unravelled BCCI, likes to make a comparison: in terms of size and position in the financial world, London and New York are of similar size, yet the number of cases brought here for financial crime are negligible versus New York. Do we suppose fraud and insider trading never occur on this side of the Atlantic, he asks, that somehow they're a US phenomenon? That's certainly the impression we give.
  
  …………We may mock the US gumshoe and raincoat approach, may revel in John Grisham's storylines, but we could do with it here. Look at the Equitable victims, sorry, policyholders. In 2001, the Government announces the setting up of the Penrose inquiry, an independent investigation, headed by Scottish judge, Lord Penrose. Some three years later, in 2004, the good lord finally reports. What does Penrose conclude? That the regulatory system failed the policyholders and the Equitable was "the author of its own misfortunes".
  
  Did the Government promise to hold up its hand and promise compensation? Not a chance. Ruth Kelly, then the Financial Secretary, launched a spin counter offensive denying responsibility. She, of course, has gone on to become Education Secretary, so she's an Equitable winner, too.
  
  ………..There will be more Equitables and more Maxwells. And more Treves. In 1991, four directors of Maxwell Communication Corporation consulted their City lawyer because they suspected wrongdoing by the late tycoon. He advised them to keep quiet because their first duty was to protect shareholders. "On the evidence available it was the only advice that could be given," said the lawyer. His name? Vanni Treves.”
  Chris Blackhurst, City Editor, London Evening Standard 4 October, 2005
  
  See also Tom Bawden, The Times 5 October on the cost of UK cases

• “Treves is not the man to take Equitable forward. The Equitable Life board’s talent for torturing policyholders in new and hitherto undreamed of ways reached new heights with the announcement last week that its wildly expensive case against Ernst & young had collapsed in tatters.
  
  Treves……….put blame fairly and squarely on lawyers for giving wrong advice. “We had no option but proceed, given the advice,” he said, dismissing the costs to policyholders as “around £50 per head”.
  
  Treves said he was unable to reveal how much policyholders have been forced to pay in legal fees since he became chairman, but insisted that most had been outside his control. Extraordinary, don’t you think?
  
  Meanwhile, EMAG’s Petition to the Europe Parliament for legal proceedings to be instituted against the UK Government scored a notable success in Brussels earlier this month when a cross-party group of MEPs from Britain, Germany and Ireland backed a call for an Inquiry into the affair. The case continues.
  
  Iain Ogilvie, who is charged by the Parliamentary Ombudsman to prepare her second report on the Government’s role in the affair, was in Brussels to put the ombudsman’s views.
  
  Interestingly, Treves turned down a request from EMAG last year for just £2m to help pursue the UK Government in Europe, presumably because no highly paid silk had backed the request with cogent legal arguments.
  
  The ombudsman’s report (dubbed PO 2) is now expected to be published in January. Its conclusions are thought likely to be considerably different from those of its weedy predecessor and are expected to back calls for Government compensation. The Government is not legally bound to abide by any such findings, however, and may still have to be shamed into doing so.
  
  Treves, who has consistently refused to take on the Government, is NOT the man to lead Equitable through this crucial next stage.”
  
  Liz Dolan, Sunday Telegraph 25 September, 2005

• Michael Cashman, Labour MEP for the West Midlands and deputy chairman of the European Parliament’s Petitions Committee, was the first MEP (of a dozen from ALL political parties) to respond extremely positively to EMAG’s verbal presentation in Brussels on 13 September. After quoting from the preamble to the Third Life Directive, the Baird Report and the Penrose Report he concluded by saying this:
  
  (Verbatim transcript)
  
  "Mr Chairman, I believe just from those selective quotes that there are enough reasons to ask the Commission to look again.
  
  Finally, let me say that the people who have petitioned us were NOT speculating on some gamble or insurance market. I believe they were undertaking responsibilities as citizens which we encouraged them to do and they were taking up what was considered one of the safest investment packages in the industry – that of a pension.
  
  Therefore, I believe there are two ways forward: Pressure through the Courts. We’ve quite clearly heard that that would cost a great deal of money. We have seen other associations go down that route and indeed, until they go through the national Court, they would not even have a case before the European Court of Human Rights.
  
  This is, I think, of SUCH a pan-European nature and affecting over one million citizens, that this warrants the setting up of a temporary Committee of Enquiry.
  
  I believe that this would not prejudice any current investigation carried out by the Parliamentary Ombudsman – and I thank Mr Ogilvie for quite clearly indicating the areas which the Ombudsman cannot investigate and, quite frankly, those bodies CAN be covered by a temporary Committee of Enquiry.
  
  I know some people will go to any length to attack the British Government of any political nature: Let me just say: We have to take the Member State out of the equation. We have to take the different Governments out of the equation and say: “Would ANY Member State be allowed to do this without an investigation from one of the Institutions?” The answer I come to is that, NO, the Member State would NOT be allowed to operate in this way.
  
  We could, of course, indulge in a report. That would take some months. Again, it’s a good option, but I hope such a report would come forward with a recommendation to consider, amongst others, a temporary Committee of Enquiry.
  
  But I would personally like to feel that we should focus quite clearly on the swiftest and most effective approach and that is the setting up of a temporary Committee of Enquiry. Thank you.”

• EMAG goes to Europe to seek Equitable justice.
  
  EMAG is confident of very widespread support from European MEPs for its Equitable Life Petition hearing in the Brussels Parliament on Tuesday.
  
  EMAG is asking the Petitions Committee to investigate and precipitate proceedings against the UK Government for breaches of EC Laws in the European Court of Justice, thus upholding European law and protecting citizens’ rights to justice from obstruction by the UK Government.
  
  Paul Braithwaite, general manager of EMAG:
  “For five years The Treasury and its pals have used every Sir Humphrey trick in the book to avoid paying compensation. But because they’ve tried to keep the lid on it, it’s festered. Untold damage has been done to confidence in regulation and financial services industry. It’s vital for Europe to take an interest and lance the boil.”
  
  EMAG alleges that the British Government has denied policyholders’ reasonable demands for compensation for regulatory failure over more than a decade and that it has distorted, then ignored, the damning conclusions of the Penrose Report. Specifically, EMAG claims that the UK has failed since 1994 to apply the First and Third Life Directives, with the consequential loss of more than £4bn to over one million investors, 15,000 of whom reside elsewhere in Europe. Many MEPs from Ireland and Germany have indicated their backing for the petition, as well as MEPs from ALL UK parties.
  
  The support of British Socialist MEPs is in stark contrast to the years of indifference from Labour MPs, who have deferred to the Labour whip, thus ensuring that Equitable policyholders have been thwarted at every turn. This has caused EMAG to appeal over the head of the UK Government to Europe in its search for justice and compensation.
  
  Tom Lake, chairman of EMAG:
  “Equitable Life is now a byword for lack of confidence in the Government's handling of its pension crisis. Gordon Brown's Treasury has dodged all responsibility and simply dumped the Equitable Life investors and pensioners with their £4bn losses. MEPs can help Britain restore confidence in savings by applying European standards and law to regulation, including an effective means of putting right the consequences of breaches of European law.”
  
  EMAG press release 11 September, 2005

• "Ernst & Young in holiday mood as Equitable case takes a break. In the days since the High Court negligence action Equitable Life is bringing against Ernst & Young broke for the summer recess, optimistic attitudes at the accountancy firm seem to have hardened.
  
  Nick Land, chairman of E&Y UK, makes no secret of his satisfaction with the way the blockbuster trial is going. While stressing that no one on the E&Y side is complacent, he says:
  
  "So far, it's gone pretty perfectly."
  
  In the Equitable camp, the mood is correspondingly sombre. When senior members of the mutual's legal team return from holiday, the society says it will be:
  
  "taking stock; appraising where the case is and where the claim goes in the autumn".
  
  Even Mr Justice Langley has seemed somewhat frustrated by the lack of clarity in the society's case.
  
  "What targets are still seriously being aimed at? I would have thought it would be helpful to everyone to know the answer to that," he told Equitable's legal team before the break.
  
  So with the society apparently on the back foot, might this be a moment when the case could settle?
  
  Privately, some people involved in the case think this is a possibility, albeit slim. Equitable has indicated it would be prepared to settle in principle, although nine-figure sums aired in the media to date have never looked remotely acceptable to the defendants.
  
  Meanwhile, from the defendants' standpoint, however well the trial appears to be going, there is always an inherent "litigation risk" in continuing with the courtroom battle.
  
  That said, there are complicating considerations. Some of the former directors, for example, are being represented by way of conditional fee agreements, so they could have costs issues. What happens in the High Court trial may also have some impact on the outstanding professional disciplinary proceedings, which are currently stayed.
  
  And for the moment at least, the accountancy firm appears to be hanging tough.
  
  "It was a bullying claim... we're way past that stage," says Mr Land."
  
  By Nikki Tait, Financial Times 12 August 2005,

• “Message to Equitable – stop digging:
  MPs are not the only ones enjoying long summer holidays. Judges don't do badly either. Ten days ago, Mr Justice Langley called a temporary truce in the Equitable Life shoot-out.
  
  For Iain Milligan QC, acting for Equitable, and its directors led by chairman Vanni Treves, it will surely be an uneasy break. They have much to reflect on. In particular, whether they should carry on with their multi-billion pound claims against the former directors and E&Y - claims that have been seriously undermined since proceedings began in early April.
  
  How the mood has changed in the Equitable camp. Back in April, it was confident of winning more than £2bn in damages from E&Y. Just before the proceedings began, Treves told Financial Mail: 'In all litigation, there is always an element of bluster, but I am deadly serious. This is no game of cat and mouse. I hope E&Y realise this before we inflict grievous damage.'
  
  Since then, the only grievous damage has been done to Equitable, with the mutual and its legal team getting a courtroom going-over that would have done Muhammad Ali proud.
  
  What remains of Equitable's case now is a £700m claim for audit failure against E&Y and a £1.7bn negligence claim against the former directors.
  
  I wonder what Treves thinks in view of the judge's ridiculing of Milligan and the diminished claim? E&Y cuttingly condemned it as 'one of the worst examples ever seen of the disreputable tactic of making a hugely inflated claim, now admittedly hopeless, against a deep pocket'.
  
  Equitable now has three options to consider. One is to battle on with the claim. This is a high-risk strategy because the runes suggest that Equitable will lose. If this happens, it - that is the policyholders - will have to pick up the entire legal bill, with little change from £85m. Policyholders will be unhappy and there will be pressure on Treves and his chief executive, Charles Thomson, to go.
  
  Two, Equitable could withdraw the rest of its claim, saving future legal bills but landing itself with a reckoning for costs incurred by itself, E&Y and the former directors.
  
  Or three, it could strike a compromise deal with all parties in which the case was dropped and everyone agreed to pay their own legal bills. For Equitable, it would mean less financial pain while E&Y would not suffer more damage to its good name.
  
  I know what I would do if I were Equitable. I would try for a compromise and, failing that, drop the claim anyway. As E&Y has said: 'Millions of pounds of policyholders' money has been poured down the drain in a speculative and irresponsible gamble that was always bound to fail.'
  
  Accept the pain, Equitable, and cut your losses.”
  
  Jeff Prestridge, personal finance editor of the Mail on Sunday, 31 July, 2005 (see also, item 2 below)

• “Litigious Equitable cannot afford to court disaster
  
  Guilt in any complex financial case is famously difficult to prove - which is why anyone contemplating forking out the mega-millions on such actions should ensure they have a pretty solid case. This is particularly true for Equitable Life because, as a mutual, any eventual bill will have to come out of members' own threadbare coffers.
  
  The board has so far admitted to spending £35m on legal expenses. Observers fear the final bill (including the costs of a negligence case against former Equitable directors which is running alongside the E&Y trial) may be closer to £ 50m. It is believed the defendants in both cases will have spent at least that much again. If Equitable loses both cases, the remaining members (mostly elderly annuitants whose income has already been repeatedly slashed) could face a bill of £ 100m, possibly more.
  
  This is not inconceivable. Equitable and its lawyers are already guilty of several serious misjudgments. Last month, they dropped an additional £100m claim against E&Y introduced only days earlier. Soon afterwards, Equitable's legal team was forced to admit that Vanni Treves, the chairman, had wrongly implied at the recent annual general meeting that fraud and misfeasance may be central to the case against the former directors.
  
  Then, last week, the Equitable team dumped attempts to prove that the society may have been put up for sale at an earlier stage had E&Y auditors alerted the former directors to the true state of Equitable's finances - thus slashing the amount sought in damages from E&Y by £ 1.3 billion to just £750m.
  
  When Treves first announced plans to take E&Y to court in 2002, a potential amount closer to £ 3.5 billion was mentioned. E&Y, clearly cock-a-hoop at the climb-down, described the case as "one of the worst examples ever seen of the disreputable tactic of making a hugely inflated claim, now admittedly hopeless, against a deep pocket'' in the hope of forcing a settlement out of fear of litigation risk.
  
  It went on to say: "Millions of pounds of policyholders' money has been poured down the drain in a speculative and irresponsible gamble that was always bound to fail. Substantial associated legal costs will now have to be paid by Equitable to Ernst & Young.''
  
  Liz Dolan, Sunday Telegraph 24 July 2005

• “Equitable to continue fighting case despite judge's criticisms. Equitable Life vowed yesterday to “carrying on fighting” in the multibillion-pound High Court action against its former directors and auditors, despite criticism from the judge hearing the case.
  
  On the final day before the summer recess, Mr Justice Langley said that he found Equitable’s arguments “odd” and that an argument by Ian Milligan, QC, acting for Equitable, was “somewhat unimpressive”.
  
  Equitable alleges that 15 former directors and Ernst & Young (E&Y), its former auditors, negligently allowed the society to reach the brink of collapse in 2000. The mutual alleges that E&Y should have warned the directors that their liabilities were at least £1 billion higher than thought. The society also claims that, had the directors known this, they would have slashed policyholders’ bonuses and put the society up for sale.
  
  But on Monday Equitable dropped its claim for £1.3 billion compensation for the so-called lost sale, after the former directors argued that they would not have pursued a disposal, regardless of E&Y’s advice.
  
  Despite accepting the former directors’ argument on this, Equitable has refused to accept their evidence that E&Y’s advice would not have affected bonus levels.
  
  Yesterday, Mr Justice Langley asked Mr Milligan to clarify the mutual’s argument. “What targets are still seriously being aimed at?” the judge asked. “I would have thought it would be helpful to everybody to know the answer to that,” he added.
  
  A spokesman for Equitable said yesterday that the mutual would consider a settlement if E&Y made the right offer.”
  
  Christine Seib in The Times, 22 July 2005

• E&Y decides not to call witnesses
  The accountancy firm Ernst & Young, which is being sued for £2bn by the insurer Equitable Life, yesterday told a high court judge that it would not be calling any factual evidence to support its case.
  
  The move surprised the judge, Mr Justice Langley, who repeatedly questioned Ernst & Young's QC about the decision and told him: "I just need to get my mind round this."
  
  The decision, on day 51 of the marathon case, means none of Ernst & Young's witnesses of fact, such as its partners, will give evidence, and their witness statements will not form part of the case.
  
  The 243-year-old insurer is pursuing a negligence claim for £2bn against Ernst & Young and for a further £1.7bn against a group of former Equitable directors.
  
  The accountancy firm's QC, Mark Hapgood, told the court: "We take the view that the case against Ernst & Young is utterly hopeless, in light of the evidence of the directors."
  
  He added: "We therefore see no need to call any factual evidence, and a decision has been taken today not to do so."
  
  However, Mr Hapgood said the firm would be calling its expert evidence.
  
  Equitable 's QC, Iain Milligan, told the court he was "obviously somewhat surprised by the statement about no E&Y witnesses". The Guardian, Rupert Jones July 15, 2005
  
  See also: James Moore , The Telegraph.
  
  Bob Sherwood in The Financial Times
  
  Ian Lyall, Daily Mail

• An apology made in Court 76 by the Society’s barrister, Robert Miles QC, on 5 July about an incorrect statement made by Vanni Treves at the ELAS AGM:
  
  “………following further exchanges with Mr White, Mr Treves said: "The question as to whether or not there was fraud or any other misfeasance on the part of our predecessors in the past is central to the litigation."
  
  Mr Treves accepts that that comment is not correct and should not have been made. The Society acknowledged that when the matter was first raised in court by Mr Martin. The Society has made clear throughout these proceedings that there is no allegation of dishonesty or fraud against the director defendants.
  Mr Treves' comment was made towards the end of the AGM, in the heat of the moment, and in response to the issue of fraud having been raised by Mr White.
  Mr Treves retracts his comment and apologises to Mr Martin and all of the other director defendants for having made it.”
  
  Here is a transcript of part of the exchange at the ELAS AGM between Arthur White (AW) and Vanni Treves (VT):
  
  VT: We are happy to provide any information, legal or otherwise, that isn't privileged. A great deal of information is privileged and…and, what is more, is now the subject of Court proceedings.
  However, the good news is that an awful lot of information - which you'll be delighted, I know, to read - is available as a function of those Court proceedings and…and...…will keep you fully occupied, not to say entertained, for a long time to come - we're talking about rooms full of paper!
  AW: Let's not confuse the issue, chairman. You're trying to confuse and defuse the situation. I'm simply not talking about the current legal action. I'm talking about the information that you hold.
  VT: The question as to whether or not there was fraud or any other misfeasance on the part of our predecessors is central to the litigation.
  AW: Well, chairman, in that case…
  (Uproar)
  VT: ONE of us is being shouted at and I'm prepared to believe it's you!
  (More uproar)”
  
  Press reporting:
  Rupert Jones, Guardian 6 July
  Nikki Tait, Financial Times 6 July
  Alex Hawkes, Accountancy Age 6 July
  Reuters, 5 July

• Policyholders take petitions to Europe - EQUITABLE LIFE
  Members of the European Parliament are to debate allegations by disgruntled Equitable Life policyholders that the UK government failed in its regulatory duties.
  
  The parliament's petitions committee, which aims to provide redress to European citizens, is to discuss the allegations contained in petitions it has received from Arthur White, an Equitable policyholder from Kent, and the Equitable Members Action Group, an independent association of Equitable policyholders, at a public meeting in mid-September.
  
  Representatives from the UK government, the office of the Parliamentary Ombudsman and Equitable would be invited to attend, along with White and EMAG. The meeting would be "the first time you have got all these people... putting their cards on the table in public", says one person familiar with the situation.
  
  Although the committee's meetings to discuss petitions are always public, only in a small number of cases are all the parties affected by a petition invited to attend. Of the 1,200 to 1,500 petitions the committee receives each year, only about 12-15 would be treated in this way.
  
  Although the European Parliament has no power to award compensation, the petitioners could use an outcome in their favour as the basis to pursue a payout.
  
  Paul Braithwaite, general secretary of EMAG, says: "The meetings that we have had with MEPs have been extremely constructive and we have reason to believe that there is a great deal of sympathy in the European Parliament."
  
  He says EMAG was also submitting an addendum to its petition to reflect a decision by the UK government that the outcome of a further investigation by Ann Abraham, the Parliamentary Ombudsman, into the government's regulation of Equitable, would apply to policyholders in other EU states as well as the UK. Abraham hopes to complete the inquiry by the end of this year.
  
  The addendum would also reflect the decision by the Financial Ombudsman Service that redress of complaints following Lord Penrose's report into the overpayment of bonuses by Equitable in the late 1980s and 1990s did not fall under its remit.
  
  Financial Times, Andrea Felsted 2 July 2005
  
  And The Guardian, Rupert Jones 5 July 05
  
  And EMAG’s press release.

• Case being sustained to avoid 'embarrassment,' says E&Y.
  
  Ernst & Young has stepped up its assault on Equitable Life, saying that the only reason significant aspects of the case against it are being pursued is to avoid the embarrassment of dropping them. E&Y said earlier this week that Equitable Life’s case against it had become ‘directionless and increasingly confused’ after the mutual dropped its £100m surrender penalties claim.
  
  E&Y is now gunning for the lost sale part of the claim, which amounts for £1.3bn of Equitable's £2bn claim against its former auditors, and is pushing for it to be dropped. Mark Hapgood QC, for E&Y, asked again this morning whether Equitable was still pursuing the lost sale claim.
  
  'It was not in put any shape or form to the present witness,' he said. 'It represents about 70 per cent of the whole claim. The headline figure is over £1bn. The headline figure on the bonus cut claim is £521m, and with the concession about the cut-off date, that now falls to well below £500m.
  
  'It is only the lost sale claim that enables the Society to go on saying to the press, week after week, that they are claiming - and inferentially may recover - £2bn from Ernst & Young. It is quite probably the thought of the embarrassment of having to climb down from that figure that is keeping the case alive.'
  
  When quizzed by the judge on whether it would be continuing with the claim, Iain Milligan QC, for Equitable, said that he had indicated Equitable's intention to continue with the claim to E&Y.
  
  E&Y was emboldened recently by a remarkable own goal scored by Equitable, which raised the prospect of a new £100m claim against E&Y, only to drop it several days later. The claim had revolved around the idea that Equitable might have increased surrender penalties in the late 1990s if it had been properly advised of its financial position.
  
  Alex Hawkes, Accountancy Age 29 Jun 2005

• In Court 76: Witness John Sclater, ELAS ex-President and a director for a very long period:
  
  “…………..over the years, I had actually been, I think, chairman of four separate banks, chief executive of one, and the chairman of a life assurance society, and I knew personally very well the regulators, not in all cases very well, but usually pretty well, the regulators who were responsible for my various organisations.
  One thing I really had learnt over the years was if the regulator ever had any concern about anything that really mattered, he would come and tip me off quietly and privately, so that I could do something about it, and there was actually one occasion when a sort of minor regulator, if you like, of the Equitable Life did tip me off that something was not as it should be, and that was when Andrew Large, who I think was -- he was chairman of -- I forget exactly what it was called, the PIA, it might have been, but it was the sort of unit trust and the various bits of mis-selling, it was to do with pensions mis-selling.
  
  He did at one stage take me aside and say,
  "Look, this is not being handled quite right by the Equitable, I would just like to draw your attention to that", at which point a lot of action was taken extremely fast, but the point I am really trying to make is I continue to attach a lot of importance, in my recollection of events, to the fact that I think with that one exception, never on any occasion did any regulator seek to come and see me to say that things were not as they should be.
  
  The only other time I really saw the regulator personally, I think, on Equitable affairs was when Alan Nash and I went to, as it were, run up the white flag in December 2000, when we had failed to sell the Society, when we voluntarily went round and said, "Really we must close the business."
  
  Transcript of Monday 27 June (Day 40) page 3, line 1
  
  And, in the afternoon of Day 40, on the subject of ELAS’s proposed extra £100m claim that it had introduced on Day 39:
  
  MR MILLIGAN: "My Lord, before I resume my questions of Mr Sclater, there are two matters I would like to mention.
  The first is that in the light of the debate last Thursday about contractual surrenders, we have received further advice from our experts, and I do NOT propose, in the light of that advice, to pursue the application. It gives rise to too many complications.
  
  Transcript, page 93, line 4
  
  See: Accountancy Age 24 June
  
  Superseded by withdrawl. See Financial Times 28 June 2005
  
  “E&Y responded: "The fact that four years into this process and nearly halfway through the current proceedings, Equitable has been forced to amend its claim for the sixth time, and then abandoned that attempt halfway through can only be seen as clutching at straws."

• Equitable unveils new £100m claim
  
  Equitable Life is attempting to claim another £100m from Ernst & Young, its former auditor, Accountancy Age can reveal.
  
  The claim, which was outlined in court yesterday, was immediately denounced by E&Y as 'clutching at straws.' It comes halfway through the court proceedings of an action that was launched four years ago.
  
  The claim concerns the charging of surrender penalties to policyholders in the late 1990s.
  
  Taking as its basis the idea that E&Y was negligent in not advising Equitable of the need for greater provisions for guaranteed annuity rates, the grounds for the mutual's other claims, it further alleges that directors would have increased surrender penalties on some of its policies to shore up its financial position in the late 1990s…….
  
  The amendment may not be allowed on the grounds that it opens up so many issues that there will not be time to decide them, it is thought. Mr Justice Langley has given the parties until close of play Monday to come up with firmer details of the claim, and defences against it.
  
  In a statement, E&Y said: 'The last ten weeks in Court have only reinforced the belief of Ernst & Young, and most impartial observers of the case, that the claim by Equitable Life against us is totally without merit.
  
  'The fact that four years into this process and nearly half way through the current proceedings, Equitable has been forced to attempt to amend its claim for the sixth time, can only be seen as clutching at straws. More policyholders’ money will be poured down the drain.'
  
  Alex Hawkes, Accountancy Age 24 Jun 2005

• In Court 76 June 9, 2005 – page 187, line 7
  
  MR HAPGOOD: “My Lord, may I mention one matter before we get to the next witness?
  
  As I think was apparent in my cross-examination of Mr Nash, there are parts of the claimant's case on which we would welcome clarification.
  
  This is not a submission about the merits, it is about scope, the merits are making themselves very apparent.
  
  The first point is this, and it is a very important point:
  
  is the Society actually any more advancing Mr Arnold's case?
  
  Virtually none of his evidence has been put to Mr Headdon or Mr Nash. The actual figures were not put to either witness.
  
  The first expert evidence deployed by Mr Milligan against Mr Headdon was the report, not of his own expert, but of Mr Wilson's expert.
  
  Now, every time this case gets reported in the press, there is always a headline figure, "The £2,000 million claim against Ernst & Young".
  
  If in truth the bonus claim has come down from £800 million/£900 million to £4.8 million then in our submission, the Society should come clean on that and tell your Lordship and tell us, just as a matter of fairness.
  
  The second point is the lost sale claim.
  
  I mean, that looks to have been virtually abandoned. Mr Nash was asked about it only in relation to the 1997 accounts.
  
  His answer, that it was not on the radar screen, was not even challenged. The case was not put to him on the 1998 accounts or the 1999 accounts. Of course, as your Lordship knows, the Society's case against the directors is that once you get to Hyman, the lost sale claim does not run.
  
  Again, this is a part of the case that is going to take up a lot of time, and it is going to take a lot of factual and expert evidence, and if the Society has come to the view that actually it is just hopeless, then they should say so now.”
  
  _____________________________________________
  
  The following morning Iain Milligan QC, for the Society, confirmed the intention to persist with the claim and Hapgood QC laid down a marker that his clients would seek to be reimbursed for all associated costs, should that element ultimately fail.

• 'Dim sheep' jibe angers Equitable
  
  "Equitable Life yesterday launched a furious attack on the leader of its biggest policyholder action group after he accused people who attended the troubled insurer's annual meeting of behaving as "dim-witted sheep".
  
  Paul Braithwaite, general secretary of EMAG, made the comment after the society's annual meeting on an internet bulletin board operating by financial web site The Motley Fool. He was commenting on demands from Equitable members that annuity policyholder Arthur White sit down at the meeting after making a lengthy speech containing series of demands for information from chairman Vanni Treves.
  
  Mr Braithwaite, who is paid £2,500 a month by EMAG said in his posting: "It seems incredible to me that the gathered demonstrably loyal annuitants, of all people, should behave as dim-witted sheep being manipulated to sneer at a policyholder trying to pose a heartfelt vitally important question."
  
  However, Equitable chairman Vanni Treves described the comments as "disgraceful". He said: "EMAG and its general secretary claim to represent the interests of all policyholders yet they have a funny way of showing it. Braithwaite's comments are distasteful, derogatory and derisory. "Annuitants have suffered enough in recent years, and mockery of them is contemptible."
  
  The relationship between Equitable and EMAG has grown increasingly fraught since the group was founded in the wake of the society's closure to new business in 2000. The two sides' relationship reached its nadir at last year's annual meeting when Mr Treves described the group as "vindictive".
  
  Mr Braithwaite said yesterday: "The post I put up was a personal interpretation of what I had seen at the meeting. The post was concerned at the way that Vanni Treves had mocked Arthur White, who was making a substantial point." He added: "EMAG has always acted with concern for with-profits annuitants. I was expressing personal frustration."
  
  The Daily Telegraph, James Moore, 24/05/2005
  
  To understand the background, read this Motley Fool thread
  
  To see informed reactions to Vanni Treves' criticism, click here.

• "Law firm in firing line at Equitable hearing
  Herbert Smith accused of failing to disclose documentation
  
  Top law firm Herbert Smith today found itself at the front of the firing line in the mammoth £1.7bn High Court legal battle in which Equitable Life is suing accountants Ernst & Young and a group of its own directors.
  
  Today the defendants rounded on Equitable and the law firm which represents it, alleging non-disclosure of documentation and claiming their case had been prejudiced by this. Now further documentation is to be investigated with a view to its disclosure if relevant.
  
  Laurence Rabinowitz QC, representing six of the directors, launched the main attack on the Herbert Smith-backed counsel representing the other defendants.
  
  He said it was 'objectionable' that a £1.7bn claim should be taking place 'without all the relevant documentation being disclosed'. He also claimed Herbert Smith had been playing 'a quite inappropriate legal game' and said that among other things this meant that cross-examination of witnesses had to take place 'without relevant documentation'.
  
  'Is this simply a long whinge on our part or has real prejudice been caused?' he asked and replied, 'We say real prejudice has been caused.'
  
  He continued : 'This is simply no way in which litigation of this scale and seriousness should be conducted and in our submission the responsibility lies with the Society and its legal advisers.'
  
  Accountancy Magazine 10 May, 2005

• Extracts from Court Transcript of 3 May 2005: Mark Hapgood QC to Charles Thomson:
  
  Page 70 line 3, referring to Peter Nowell, the Appointed Actuary, draft report to the board
  18 May, 2001 - note that this was one week BEFORE the ELAS 2001 AGM:
  Q. - He (Nowell) then goes on to talk about the durational effect:
  
  "I therefore recommend that the cut is in the form of a reduction in final bonus of say 30 per cent to 35 per cent. We believe this is equivalent to a 10 per cent overall reduction in policy values."
  
  So as I understand that, Mr Nowell is beginning to overcome some of his qualms about PRE discussed in the meeting a few days earlier, and now sees a greater need to take some fairly dramatic action, and he favours doing that by cutting back final bonus so as to achieve better equity across different durations.
  
  A. That certainly seems so.
  
  Q. Did these papers ever see the light of day as board papers, do you know?
  A. This is a draft note to the board dated 18th May.
  _____________________________________________________________________________
  At page 94, line 14:
  
  We now come to an account of a lengthy interview which Mr Treves gave to the Sunday Express (July 2001). Starting at the bottom of the second column:
  
  "When it comes to understanding events at Equitable, timing is crucial, says Treves. His lawyer's eye for detail is evident as he fetches his diary so he can accurately run through his meetings since taking charge. One of the first things he did after appointing the highly qualified board that has replaced the discredited team whose decisions helped spark the crisis was to commission a report into the true state of the business.
  
  The review was presented to him on June 27, and it was only then, insists Treves, that he discovered just how desperate things were at Equitable.
  
  "'I was shocked. It had never crossed my mind that things were so bad. The piece of paper that most surprised me was a graph that showed over the course of 10 years the gap between the asset values and the policy values. There was an ever increasing divergence between the two. That was the piece of paper, supported by endless statistics, that did it for me'.
  ______________________________________________________________________________
  At page 95, line 25:
  
  Mr Thomson, can you see anything in that account which bears much resemblance to the actual chain of events we have looked at this morning?
  
  A. I can see things that are related to it, but I do not see a close parallel.
  
  Q. What was this report that he saw for the first time on 27th June?
  A. I think you have seen financial information presented to the board on 27th June and -
  
  Q. Well, we have seen Mr Nowell's paper on the FSA returns -
  A. I presume that is what -
  
  Q. -- at which he was recommending an interim growth rate freeze. In fact, this financial review has never really existed as such in the sense of a document called "Financial Review", has it? It has not been disclosed.
  ____________________________________________________________________
  At page 97, line 5:
  
  Q. - Mr Treves also says that until he received this report, whatever it was, in June, it had never crossed his mind that things were so bad. However, last Wednesday, in giving evidence, and this is page 171 of the transcript, you said:
  
  "By the end of May 2001, we knew that there was no alternative but to take the actions we took in July."
  
  A. I said that the board's first information about this was in May 2001, in the afternoon of the AGM, and I said that that was a very unsatisfactory meeting.

• "Both sides seem content to imply that it was sufficient to bring policy values and assets into line every few years, which Lord Penrose reported Chris Headdon describing as 'smoothing across the peaks'. We (EMAG) know that this was wrong, since it meant that the extra cash being paid out to leavers during the long periods of deficiency was never balanced by the cash 'saved' during the much shorter periods of (almost) surplus. It does not appear to be in anyone's interest to take this point.
  
  However, bonus policy is central to the Society's case against all defendants and it keeps rearing its ugly head. Charles Thomson had some difficulty explaining why he approved the year 2000 bonus, which was in excess of earnings, but is now claiming that the 1995-1999 bonuses (which were less than earnings) were too high……….He also had difficulty explaining why the Society was telling its policyholders in the infamous 'Fact Sheet' (27 October 2004) that the asset/policy value situation was acceptable in 1999, but suing the old directors and auditors for voting bonuses that were too high in the immediately previous years.
  
  The 1990 bonus decision is being confirmed as a really awful one. It created a big adverse gap between assets and policy values, which significantly advantaged pre-1990 policyholders and according to Bacon & Woodrow's Peter Nowell, was still showing its effect as late as 2001.
  
  It is becoming clear that as far as the directors are concerned, the really damaging decisions, e.g. the 1990 bonus decision and the 1993 DTBP decision without provision, are time barred and the available alternatives are very poor substitutes. As far as Ernst & Young is concerned, they may well have been wrong not to provide for the contractual portion of the GAR cost but the wrong people are doing the suing, the directors who knew - rather than the members who didn't."
  
  Extract from EMAG committee member's synthesis of the information beginning to flow from Court proceedings: Read Colin Slater's personal take here.

• "Baffling weakness of a case with no winners
  
  The case of Equitable Life against its former directors and auditors is shaping up as one of the strangest of the year so far. To say it has been running for a fortnight would be something of an exaggeration; staggering along would be a better description. The usual form in these complex affairs is for an opening barrage from the plaintiff's QC that makes the case look almost unanswerable.
  
  Last week, Equitable's opening salvo sounded more popgun than battery, and poorly aimed at that. This week we have heard the defence from the former directors who, lacking anything resembling a smoking gun with their prints on it, have struggled to know where to aim in their search for a reply.
  
  In fairness, this is a desperately difficult case. The directors had been on the board when Equitable was making some terrible misjudgments over a protracted period, and policyholders have paid heavily for the discovery, too late for many to do much about it, that their supposedly safe pension was nothing of the kind.
  
  ………………had the opening salvos contained convincing allegations of negligence, the former directors would have had to defend themselves as best they could. Yet even some Equitable sympathisers are baffled at the weakness of the case that has been laid before the court.
  
  Life company accounts are pretty opaque and to expect non-experts to see problems the professionals missed is asking for insight and commitment to detail far beyond the remit of any non-executive director.
  
  Some of them have already been ruined, and in losing both wealth and reputation have suffered much more than the policyholders. The case is slated to run into the autumn, and as Mr Justice Langley tries to come to judgment in this affair with no winners but the lawyers, he might just wonder when enough is enough."
  
  Neil Collins editorial in the Saturday Telegraph 23 April 2005

• From Equitable's solicitors, Herbert Smith, to EMAG:
  
  "As to your requests for copies of certain documents to which reference has been made in open Court, you will be aware that the Judge indicated in Court on April 18 2005 that once documents are first put in evidence (if at all) it would be for any third party to approach the party who had put the document in evidence and to seek to reach agreement with them to obtain a copy.
  
  In relation to the particular documents to which you have referred, we note that the expert report of Mr Arnold is not in evidence until he appears to give evidence.
  
  In any event, the Society's view is that, for reasons which include logistical considerations, it does not intend to meet requests for copies of documents in the trial bundle which have been referred to in open Court."
  
  Verbatim quote from an unsigned letter from Herbert Smith, dated 21 April, 2005. BTW, whilst Mike Arnold's testimony is being discussed daily in Court he is not due to give evidence until October.

  From John Newman FCA, prospective first independent ELAS board director's Q& A:
  
  What about Government compensation?
  
  The major potential source of compensation is the master of the regulatory bodies i.e. ultimately the UK Government in the form of The Treasury. My logic is that policyholders entered into their investments under the mistaken belief that policy values were there in terms of real assets with a smoothing margin and that regulation was in place to ensure this. Simply put, in my view there was inadequate regulation based upon a structure that was flawed; the situation has strong parallels with the Barlow Clowes affair. Fundamentally therefore I feel that policyholders deserve compensation from the Government. This applies to all members past and present. I cannot see any justification for any being excluded because they got out or cashed out in 2001, 2002 or 2003. All were misled and therefore deserve appropriate compensation.
  
  Presently it would seem that the routes to Government compensation are the Parliamentary Ombudsman (PO) or the European Parliament / Commission. These are both long hauls, which I discuss below.
  
  Is the Parliamentary Ombudsman process worth bothering with?
  
  Yes, but only because of the bravery of my fellow committee members of EMAG. The first report from the PO was flawed, so two EMAG Committee members, Paul Braithwaite and Tom Lake, took the PO to court under the judicial review process. This is a process where the odds are very heavily against the litigant particularly when those litigants are two Davids against the Goliath of a government funded entity. They were successful in getting a second report which has been extended to cover a longer period, more Government departments and utilises the contents of Lord Penrose's report. We hope this will succeed, but to ensure this, the PO needs positive help from the Society as well as from EMAG. I want there to be active assistance from ELAS that extends to the investigation's cut off date of 1 December 2001.
  
  Why does EMAG petition the European Parliament?
  
  From the start of the process of trying to understand the accounts and legislation surrounding the operation of the Society, I realised that the legislation was changed in 1992 because of Directives agreed to by the UK Government and Parliament of the day. Other members of EMAG have also realised this and as a result, after much hard work and time, in December 2004 EMAG utilised the procedures to lay a Petition before the European Parliament which has now been accepted by the Petitions Committee. This is called: "Petition in respect of the failure of the UK government member state to take responsibility for the full implementation of the Life and non Life Insurance Directives, in particular in relation to the regulation of Equitable Life." This, briefly, calls for the Commission to investigate and then to force the UK Government to compensate policyholders for the failure of regulation. This is a lengthy but worthwhile method of proceeding. In 2004 EMAG sponsored a resolution at ELAS's AGM which called for £2m to be placed in trust for EMAG on this campaign inter alia. The resolution was lost with only 20% voting in favour (perhaps because of the Chairman's use of the proxy votes) but if I am elected as a director I will try to ensure that the European case is properly prosecuted and not ignored.
  
  Click here to see the full Q & A with John Newman.

• "It's case history as Equitable fights for damages
  IT has been dubbed the largest case brought against private individuals or an auditor in British history. Equitable Life's multi-billion-pound lawsuit against its former auditors and directors has begun in the High Court.
  
  The case will be the first full examination of non-executive directors' duties by an English court.
  
  "This is the beginning of a case that should have never been brought," Nick Land, chairman of Ernst & Young UK, said in advance of the trial. "Nothing that Ernst & Young did caused Equitable's problems. There is nothing we could have told them that they did not already know. There was no black hole, no fraud and no money lost."
  
  By 2000, the stated value of its customers' policies was £3bn more than the assets actually held by the company. That was before the House of Lords handed Equitable a bill of more than £1.5bn to pay for annuity guarantees in full. By 2001, that gap had reached £4.4bn, forcing the new board led by Vanni Treves and Charles Thompson to slash policy values by 16 per cent. It was that policy of consistently allocating to policyholders more than it actually held in assets that led to the society's financial troubles. Annuity guarantees only precipitated its decision to sell itself.
  
  Because of smoothing, a life insurer may at times allocate more value (in the form of bonuses) to its customers' policies than it holds in underlying assets.
  However, that should, in theory, be a temporary state of affairs. …….
  
  Because the maximum money was distributed to policyholders in good years, very little was held back for rainy days. In theory, this should have meant that, in bad years, the stated value of customers' policies would go down.
  However, instead of cutting them, Equitable used a range of devices to keep them up - allowing a growing gap to open up between what it was promising policyholders and what it could actually deliver. One device was to stop allocating bonuses to customers' policies in the form of reversionary bonuses. These were guaranteed and had to be counted on the life insurers' accounts as a liability.
  
  In the words of Lord Penrose, there was a "general failure on the part of regulators and GAD to mount effective challenge of the management".
  
  With the huge legal teams on both sides bedding in for a long battle until the end of the year, there will only ever be one clear winner - the lawyers.
  
  Alistair McCarthy in The Scotsman 12 April 2005

• Evasive and self-serving words from the Labour Party:
  
  "Consumer protection and market confidence
  
  The Financial Services Authority has to strike a balance between its objectives to protect consumers and to maintain market confidence. We do not believe there is any irreconcilable conflict between them. The FSA is responsible for delivering on its objectives with a view to producing a result that fulfils all of them. We have no plans to amend the FSA's statutory objectives.
  
  Accountability of the FSA We think the structures and mechanisms in place currently to ensure the FSA's accountability are satisfactory. We have no plans to extend the accountability arrangements to include the Parliamentary Ombudsman or the National Audit Office……….
  
  Financial Ombudsman Service
  
  The FOS is funded by levies and case fees that financial firms have to pay. It receives no government funding. At the beginning of each year the FOS consults publicly on its proposed budget, including the amount to be raised in its general levy and the amount of the case fee.
  
  The FOS operates under the terms of the Financial Services and Markets Act, but it is not a government body. It answers to a board of non-executive, public interest directors appointed by the FSA. The chairman is appointed by the FSA with the approval of the Treasury………..
  
  The FSA and the FOS are operationally independent and have distinct functions, but they need to co-operate and communicate constructively with each other to carry out their functions effectively. The Memorandum of Understanding simply sets a framework for the relationship between them."
  
  Stephen Timms, financial secretary to the Treasury on behalf of the Labour Party in his letter to EMAG 15 March 2005
  See the EMAG letter of 8 February to which this responded.

• FOS to find against Equitable
  
  "The Financial Ombudsman Service is expected to announce within weeks a landmark judgement against Equitable Life after a four-year investigation.
  
  The ombudsman is likely to find in favour of 1,500 policyholders who joined Equitable Life after 1998, potentially triggering compensation worth millions of pounds.
  
  The policyholders have complained that they were given misleading information about the financial position of Britain's oldest mutual, particularly in relation to the seriousness of the court battle it was fighting over its treatment of guaranteed annuity rate policies.
  
  Walter Merricks, the financial ombudsman, has been severely criticised by action groups for stalling over his final decision. He has already published preliminary adjudications in three test cases; on each occasion he found against Equitable Life.
  
  The society has already accepted that its chances of victory are slight. However, it stresses that a defeat will have little impact on its with-profits fund.
  
  Tony McGarahan, a spokesman for Equitable Life, said: "We have set aside £75 million to cover claims from late joiners, both those who complained to the ombudsman and those who accepted our offer of settlement. We believe this is more than adequate to cover whatever is contained in the ombudsman's judgement."
  
  However, there could be further delays before the cash is handed over. McGarahan said: "The issue for us is not 'can we afford to pay?'. We can. The crucial issue is whether we should accept the legal process. If we find fault with it, then we will challenge it through a judicial review, in order to protect our members."
  
  Sunday Telegraph, by Teresa Hunter 13 March, 2005

• "Penrose progress:
  
  It is exactly a year since Ruth Kelly, then the financial secretary, presented to Parliament the report on the Equitable Life disaster by Scottish Judge Lord Penrose and rejected calls for government compensation.
  
  As action group EMAG points out, she did suggest that policyholders might win redress through the Financial Ombudsman Service but - 12 months later - no decision has been taken by the chief ombudsman on whether to proceed with cases.
  
  ......for hard-hit Equitable customers, this is an unhappy anniversary."
  
  Alex Brummer (last section): Daily Mail editorial 9 March 2005
  
  See also EMAG's letter to the FOS's chief ombudsman, 8 March 2005

• Extract from a letter to the PO Investigation team head:
  
  "Although many hundreds of thousands of pages have been written about this affair, it can be seen at heart to be a simple one. Equitable simply couldn't support the obligations it took on, the regulators simply didn't stop it, although they ought to have done, and they let the policyholders and public remain in ignorance of the true situation, which they shouldn't have done!
  
  One of the motivations which has fortified policyholders in seeking redress is simple outrage. I hope you could agree that outrage can play a constructive part in social evolution by motivating reform. EMAG believes that your Investigation will have important consequences for future regulation in our country. Financial loss drives many to persist for years in their claims. If these two motivations are not identified and redressed for present and past policyholders, it will be the case that the sincerity of reform would be treated with rightful resentment.
  
  A much appreciated beacon in this affair lies in the actions of MPs and the Ombudsman in finally bringing about the far-reaching Investigation that you now lead. We wish you the fortitude to carry it through and we offer you whatever further assistance as is in our power. Just ask!
  
  EMAG's chairman, Tom Lake to the PO 2 Investigative team leader, Iain Ogilvie, 28 Feb 2005
  
  Download EMAG's 1 March 2005 107-page submission to the PO 2 Investigation, substantiating policyholder claims of maladministration.

• Parties pour contempt on Labour's vision for pensions.
  
  Opposition MPs accused the Government of trotting out a "breathtakingly bland" and "ridiculous" vision of state pension reform yesterday.
  
  Conservative and Liberal Democrat MPs were responding to a statement from Alan Johnson, Work and Pensions Secretary, containing "six principles" on which the Government hopes to base future private and state pensions reform. Included in the principles are "that the pensions system tackles poverty effectively", "that state pensions remain sustainable" and that the pensions system is "better understood".
  
  David Willetts, the shadow work and pensions secretary, yesterday dismissed the statement as a substitute for action.
  
  "After eight years of Labour and with the pensions crisis worse than ever, what does the Secretary of State offer us? Another consultation document. You could lay all the Government's consultation documents end to end and still never reach a conclusion."
  
  Steve Webb, the Liberal Democrat spokesman for work and pensions, said he was stunned that it had taken the Government eight years in office to make these ridiculous statements.
  
  "It's high time Alan Johnson clarified where he stands on key issues, such as where the Government stands on a citizen's pension," Mr Webb said.
  
  Tessa Thornily in the Daily Telegraph 21 February

• "Insurer 'ran fraud for 10 years'
  Equitable Life policyholders are stepping up their battle for compensation with the delivery of a report accusing the insurer of "systematic fraud" to the Serious Fraud Office.
  
  The 68-page report by Dr Michael Nassim, a retired physician, alleges that Equitable Life "conducted a systematic fraud over a period of more than 10 years" leading up to the insurer's closure to new business in 2000."
  
  Rupert Jones in The Guardian February 10, 2005
  
  "Tony McGarahan, at Equitable Life, said the SFO had since October 2003 been reviewing evidence submitted by the Treasury and had "not yet decided whether to launch a fraud investigation". He added: "The present board has found no evidence that would sustain a claim of fraud."
  
  From Simon Bain's column in The Herald February 10
  
  "I would like to add my own recommendation………. for anyone who is interested in what happened at the Equitable to read Nassim's new paper. It is a remarkable document to have come from the pen of one individual, even though he acknowledges the help from a number of others well known to us here.
  His paper paints an excellent and very credible picture of the background to a saga of fraud and regulatory failure. If nothing else read the Level 2 narrative between pages 12 and 39."
  
  bap1 10 February 2005, Motley Fool posts number 52010
  
  Dr Nassim's report, which represents his personal view, can be found on the website at: www.equitablelifemembers.org.uk

• Comic cuts with Equitable Life: "Judge to Counsel: You seem to be attacking your own client. Counsel to Judge: But M'Lud, surely attack is the best form of defence? They don't get many laughs at Equitable Life nowadays, but the sight of accountants KPMG admitting in a report before the High Court that its client Ernst & Young should have qualified Equitable Life's accounts long ago would have brought some wry smiles to today's directors of the society.
  
  Meanwhile, KPMG believes that the decision to bring a test case over Equitable Life's proposal for differential bonuses was the moment that the auditors should have signalled trouble.
  
  This is less of a hindsight decision than it sounds, since we warned of the possibility that Equitable Life might lose, even though it clearly never occurred to the then directors.
  
  E&Y argues that qualification is a red herring, because those directors would have carried on regardless. That is hardly the point, since a qualified audit report for such a venerable and (we thought) well-capitalised business would have rung alarm bells earlier. The disclosure raises the chances of the two sides settling before they start the serious legal spending in court.
  
  Were they to avoid that, it's not only the judge who would be mightily relieved."
  
  5 February '05 - Neil Collins City Comment (scroll down to third item) Daily Telegraph

• (Extract from a letter from EMAG to the chair and all of the non-executive directors of the Financial Ombudsman Service, dated 1 Feb 2005):
  
  "EMAG agrees wholeheartedly with you that the non-executive board members are the guardians of the independence, fairness and reputation of the FOS.
  
  But, just as justice has to be seen to be done, so independence has to be asserted when it is threatened. It is clear that the FOS has already come under extreme legal pressure in dealing with Equitable claims, as is sadly evidenced by the painfully long delay in settling the amount of compensation in, for example, late-joiner cases. Your new directors may not appreciate that hundreds (possibly thousands) of Equitable complainants have had their individual cases lodged with the FOS for three or four years.
  
  EMAG urges the board members of the FOS both to give their resolute support to the Ombudsman in the exercise of his independence in reaching a decision, and to commit to publishing his rationale along with the decision. We also encourage the board to ensure that the extra resources offered by the Treasury minister are drawn on as needed to ensure that the FOS can discharge its duties as regards Equitable claims promptly and fairly.
  
  The extent to which EMAG asks you to "bring pressure to bear on the Ombudsman" is simply that we urge you to maintain rigour, adequate resourcing and transparency in the Ombudsmen's decisions; these are essential to maintaining public confidence in the service.
  
  Click here to read more.

• "They're all passing the Equitable parcel
  Four years after Equitable Life closed to new business, thousands of investors are still hoping for compensation. Their hopes are pinned variously on the parliamentary ombudsman, the financial ombudsman, the High Court and Brussels.
  
  Passing the baton: Equitable investors are still waiting for compensation
  The first legal skirmish of the year is set for April 11 when the mutual itself will go into the High Court to seek compensation on behalf of members. It is suing for negligence its former auditors, Ernst & Young, and 15 former directors. Although this cannot result in compensation being paid directly to poilcyholders, if successful the action could boost Equitable's coffers.
  
  But the first row of the year broke out last week over "over-bonusing", with allegations and counter-allegations flying. Action groups want the issue resolved by the Financial Ombudsman Service (FOS), and are threatening to lodge substantial new complaints.
  
  However, the society's current management, which denies the allegations of over-bonusing, has written to the Financial Ombudsman indicating that it does not believe he is the appropriate adjudicator. The directors want the matter to be resolved by the Financial Services Authority (FSA), which has already stated that there was no over-bonusing and that any claims would fail.
  
  The piggy-in-the-middle is the Financial Ombudsman, Walter Merricks. Last week the Equitable Members Action Group (EMAG) pleaded with him not to bow to pressure from Equitable Life or the FSA and to investigate these complaints fully.
  
  Over-bonusing
  Penrose raised this issue when he asserted that the 16 per cent policy cuts of 2001 were to "claw back past allocation from in-force [existing] business". This allegation now has members, the FSA, the current management and the FOS at loggerheads.
  
  Penrose concluded that the society had been over-paying as far back as the early 1980s and therefore misleading future customers about what they might receive. If this is true, it opens the floodgates to claims for compensation.
  
  The members want the financial ombudsman to intervene, but he has yet to announce whether he will accept claims. So was there over-bonusing? This depends on which figures you find the more compelling. Burgess Hodgson, a firm of accountants, produced a report for EMAG last week which alleges the society allocated bonuses over and above the value of its assets every year from 1989 to 2000. In 1990 it over-allocated by 28 per cent and by 24 per cent and in 1991 and so on.
  
  This article is an excellent round-up, well worth reading.

• EMAG calls on the FOS not to yield to bullying
  
  EMAG has called on the FOS not to yield to Equitable's campaign to stop them investigating legitimate complaints arising from the damning evidence revealed in the Penrose Report. To block off this route to resolution 10 months after undertakings and encouragement by the Treasury minister would be perverse.
  
  "The credibility and independence of the FOS is on the line." said Paul Braithwaite, general secretary of EMAG. "Does it have the backbone to defy bullying by Equitable and the integrity to stand up to the possible displeasure of its parent body, the FSA? Equitable is the biggest financial scandal in a decade and it would be shameful for the FOS to give way and shirk its public duty to thousands of policyholders to adjudicate."
  
  EMAG says that the arguments advanced by Equitable in a letter to the FOS are 'sophistry concocted by expensive lawyers' and it has offered to help the FOS in every way possible, including coordinating a coherent group claim.
  
  Today, EMAG published a forensic analysis of Equitable Life's actual performance after 1999, by Chartered Accountants Burgess Hodgson, as a reasoned rebuttal to what it describes as "Equitable's own dodgy dossier". The new report seeks to debunk the contents of Equitable's unsigned but carefully crafted 'Fact Sheet' - which EMAG dubs as 'bizarrely named, with very little fact and lots of half truths'.
  
  EMAG says that the reason it is important to challenge the 'Fact Sheet' is because it is being used to block all policyholders' new complaints based on evidence about over-bonusing in Penrose's report and it has been circulated to complainants by the FOS.
  
  "Lord Penrose, Scottish Judge and Chartered Accountant, took more than 2 years and £2 million to produce his balanced, authoritative and independent report of what went wrong at Equitable, yet the Society tries to sully and dismiss it in just 4 pages" said the report's author Colin Slater of Burgess Hodgson. "This highly prejudiced document tries to discredit Lord Penrose's conclusions by using a series of specious arguments. In our report we have tried to set the record straight."
  
  EMAG says that the 'Fact Sheet' also underpins the Society's recent submission, nine months after publication of the Penrose report, that the FOS should NOT, after all, look into any Penrose-related complaints. This, despite Treasury minister Ruth Kelly's repeated undertakings and advice in the Commons last year that the FOS is the appropriate alternative to expensive Court proceedings for aggrieved policyholders.
  
  The new Burgess Hodgson report and EMAG's formal response to Walter Merricks at the FOS are both available on EMAG's website at: www.emag.org.uk
  
  Click here to download the Burgess Hodgson Fact Sheet

• Private Eye demands that the chairman and the chief executive of the FSA should resign over their shabby settlement of the "splits" scandal (extracts):
  
  "Some 50,000 investors lost an estimated minimum £600m in "splits" - £300m in investments which the FSA itself termed "relatively secure" and "lower risk". The compensation settlement signed on Christmas Eve, when most of the City had already closed down and media attention was guaranteed to be minimised, is a humiliation for the FSA in general and its chairman Callum McCarthy and chief executive, John Tiner, both of whom have talked big, especially before McFall's (Treasury select) committee.
  
  The FSA has not only totally abandoned any claims against 18 banks, brokers and fund managers involved in the settlement but made no findings of any regulatory breaches against anyone and as a result has exacted no fine or penalty.
  
  On BBC Radio Money Box in June 2002 Tiner said he did not think that gearing for splits was dangerous, did not agree that cross-holdings were high risk and did not accept that splits were too complex for the general public. No wonder regulation failed.
  
  In May 2003 it (the FSA) told the 22 (those implicated in the scandal):
  "The FSA believes the misconduct in this case and especially the impact it has had on the financial services industry as a whole to have been the most serious it has seen." Ten of its 11 principles of business had been flouted: "Significant financial penalties" were promised, even for those who settled.
  
  So, nine months of regulatory bluff and bluster produced just £23m more Than the bad guys had offered for openers and they have made no admission of liability which could open them to civil action from any investor who does not accept the FSA deal, face no regulatory criticism, paid no penalties and seen none of their employees banned from the City. That is why Tiner must go. He talked the talk but could not walk the walk. He is nowhere near value for his near £500,000 a year salary. As a result the City's only regulator - the FSA is from this month supposedly the one regulatory shop that stops all - has suffered a humiliating defeat at the hands of spivs in suits.
  
  Now everyone knows how to deal with the FSA. Call its bluff, threaten legal action, promise untold delays and it will blink. Regulatory capture is there for the taking while John Tiner is in charge. That is the message McFall should deliver. If Tiner will not resign the Treasury should sack him unless it wants a Fundamentally Supine Authority."
  
  Extract from post number 51108 by Paul Braithwaite on Motley Fool, 6 Jan 2005