'Guinea pigs' seek damages

PUBLISHED : Tuesday, 30 October, 2001, 12:00am
UPDATED : Tuesday, 30 October, 2001, 12:00am

Five investors have launched legal proceedings against their former adviser claiming they were used as a 'guinea pigs' for a new investment scheme touted as being able to absorb United States interest rate fluctuations.

FIL Leveraged US Government Bond Fund, MBS Capital Secured, MBS Securities, First Investments and FIL Investment Services yesterday claimed TCW Funds Management had breached contracts and misrepresented the scheme's ability.

Mr Justice William Stone was told in the Court of First Instance that the action arose from a 1992 investment in a fund management scheme developed around a new computer program that promised low-risk returns on a model impervious to fluctuating US interest rates.

The computer program claimed to be able to show returns regardless of interest rates. FIL was also given a five-year track record of the computer model.

However, it was claimed yesterday the computer model was no different from general schemes. It was also 'extremely volatile and highly sensitive to interest rates' and had not been used for five years, the court heard.

The Leveraged Bond Fund, which invested in US collateralised mortgages, was launched in October 1992. TCW was appointed to act as the investment adviser.

During the first year, the fund was one of the territory's top performers. But its share price fell in April 1994 after rising interest rates in the US hit government and corporate bond markets. FIL claimed TCW's strategy could not protect the funds, with shareholders losing more than HK$500 million.