Morgan Grenfell fined record pounds 2m over Young

Deutsche Morgan Grenfell was yesterday ordered to pay more than pounds 3m after Imro handed down the largest fine ever imposed under the Financial Services Act. A pounds 2m fine for the mishandling of investors' funds by its former star manager Peter Young was almost three times higher than the previous record. And it was increased by over pounds 1m to cover the investment management regulator's costs.

Imro also indicated it is planning disciplinary action against individuals who worked at the firm, although it admitted it might take another six to 18 months before it reached its conclusions. Attention has focused on the role of Keith Percy, former chief executive of Morgan Grenfell Asset Management, following Imro's suggestion yesterday that "at least one member of the board of MGAM" knew there were serious problems in its funds five months before Mr Young was suspended last September.

Six former executives are under investigation by Imro and Mr Young is the subject of a separate inquiry by the Serious Fraud Office.

Phillip Thorpe, Imro chief executive, said: "The mismanagement of these funds has caused unnecessary concern to an enormous number of investors. The firm has paid dearly as a consequence of inadequate management control. This affair plainly illustrates the dangers of ignoring clear and repeated warnings."

The fine, more than twice analysts' expectations, dwarfed the pounds 750,000 Invesco was forced to pay for pension fund violations concerning the late media tycoon Robert Maxwell. That was the previous record, ahead of a pounds 700,000 fine imposed on Jardine Fleming last year.

It comes eight months after Morgan Grenfell fired Mr Young for breaking regulations by investing too many of three funds' assets in unlisted shares. Five other executives, including Mr Percy, were ousted for failing to monitor his dealings.

Mr Young had invested in dozens of hi-tech companies, breaching the 10 per cent limit in unlisted assets that can be held by unit trusts. He concealed the investments in part through a complicated web of holding companies based in Luxembourg. The three funds affected were MG European Growth Trust, MG Europa Fund and MG European Capital Growth Fund.

Imro said Morgan Grenfell International Fund Management (MGIFM) "did not organise and control its internal affairs to ensure its funds were property managed" and said it "did not act with due skill, care and diligence when it failed to prevent the funds from making inappropriate investments".

Morgan's unit trust arm, Morgan Grenfell Unit Trust Managers, was criticised for issuing material promoting European Growth fund "without properly satisfying itself that it was fair and not misleading". Imro said Mr Young "persistently acted in a way that abided by the letter rather than the spirit of the unit trust regulations, despite giving undertakings to change his behaviour".

An Imro spokesman said the fine had been determined by the nature of the breaches, the number of investors affected and Morgan Grenfell's attitude towards compensation.

Comment, page 23