Fraud office to examine Equitable scandal

Fraud office to examine Equitable scandal

The Serious Fraud Office was yesterday called in by the government to examine possible wrongdoing at the scandal hit insurer Equitable Life.

The move stunned the insurer's long-suffering policyholders and dramatically raises the stakes in the affair, just days before a long-awaited official report into the 242-year-old company's near-collapse is due to be published.

Some commentators said the SFO's involvement could increase the chances of policyholders receiving government compensation, with one action group leader saying it could mark Equitable Life as "the British Enron".

Others were suspicious of the timing, claiming it was a "diversionary tactic" designed to move attention away from the Treasury's own role and the thorny issue of compensation at a critical time for the government.

Advertisement starts

---

---

Advertisement ends

Equitable, the world's oldest mutual life insurer, closed its doors to new business three years ago, and later repeatedly slashed the value of a million policyholders' investments, after it lost a £1.5bn legal battle in 2000 involving income guarantees given to pension customers. The law lords ruled it unfairly tried to renege on these pledges to policyholders.

In the four years since policyholders and politicians have asked why successive regulators allowed the company to con tinue trading and sign up new customers when its finances were allegedly under pressure. The debacle has spawned a flurry of legal actions.

With the exhaustive 818-page official report into what went wrong expected to be published on February 2, the Treasury yesterday made the surprise announcement it had brought in the SFO. The Treasury commissioned Scottish judge Lord Penrose to write the report in August 2001, and it was delivered to the department before Christmas.

The SFO said: "We will be studying the report to assess whether an investigation should be launched."

Neither the Treasury nor the SFO would comment on the precise focus of any investiga tion but some experts last night pointed at a crucial deal struck by a former Equitable chief to shore up the company's finances. This contract with an Irish-based company helped reassure regulators Equitable could meet its commitments - but it emerged two years ago that in 1999 former chief executive Chris Headdon allegedly altered the contract terms, reducing Equitable's cover against liabilities, without informing either the insurer's auditors or the regulators.

Last year Equitable Life won the right to pursue multibillion-pound negligence claims against Ernst & Young, its former auditor, and a number of its former directors.

Guardian Unlimited © Guardian Newspapers Limited 2003