2023-07-04 04:01:00
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Hedge fund manager Chris Rokos has reached a settlement with Deloitte over claims he received bad advice on a failed investment scheme that left him with a £40mn tax bill.
The billionaire had sued the Big Four firm in London’s High Court, alleging Deloitte was in breach of its duties when it advised him on an enterprise zone investment 14 years ago in north-east England.
Legal records show the court last month approved a so-called Tomlin order, which is used to settle disputes. Terms of the settlement were not disclosed. It also covered law firm McDermott Will & Emery, which was named as a co-defendant in the suit that Rokos filed in 2020.
The case had been expected to go to trial last month, according to two people familiar with the matter.
The enterprise zone in Tyneside was one of several such schemes — championed initially by Margaret Thatcher’s government — that offered tax breaks in return for investing in areas in need of regeneration. Under the schemes, investors were generally able to deduct from their taxable income the sum of their investment in the year it was made.
According to Rokos’s lawsuit, the hedge fund manager — whose personal fortune stands at £2bn, according to the Sunday Times Rich List — invested £100mn in the “Tyne Riverside” scheme, including £40mn of his own cash and the rest funded by a non-recourse loan. Promoters of the scheme had intended to construct a data centre on the site.
According to the claim, Rokos anticipated his investment would allow him to reduce his taxable income for the year by £100mn, resulting in a tax saving at the higher 40 per cent rate that applied at the time. As a result, he believed that even if the investment itself incurred losses, the £40mn in tax savings would allow him to mitigate them, the claim says.
However, according to the lawsuit, HM Revenue & Customs refused the tax claim and issued Rokos with a so-called accelerated payment notice — a demand to pay — in 2016. Rokos made the payment five months later. The lawsuit said Rokos might also need to pay HMRC penalties and interest.
Not only was he issued with an unexpected tax bill, but the investment itself “has also been a commercial failure”, the legal filing said. It added: “The claimant will accordingly obtain no benefit for the vast majority of the sums invested . . . and suffer significant financial loss and damage.”
Rokos is one of the most successful hedge fund managers of his generation. After stints at Goldman Sachs and Credit Suisse First Boston, where he worked alongside trader Alan Howard, Rokos co-founded Brevan Howard. He then launched Rokos Capital Management in 2015, which manages regarding $15.5bn.
In its defence, Deloitte, the first defendant in the suit, noted Rokos was a “highly sophisticated and successful fund manager” who was able to take his own decisions regarding whether the proposed transaction was commercially attractive or not. He might also draw on other sources of tax expertise.
“Deloitte owed no duty to advise on the commercial aspects of the transaction,” it said in a court filing. “Insofar as any losses were caused by commercial risks coming to pass . . . [those] are matters for which the claimant is himself responsible.”
Deloitte and a spokesman for Rokos declined to comment. MWE did not respond to requests to comment.
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