* SFO says has insufficient evidence to secure prosecution
* Focusing on tracing missing SLS assets
* Expects to give further update in July
By Kirstin Ridley
LONDON, May 3 (Reuters) - Britain's Serious Fraud Office has dropped an investigation into Keydata Investment Services, in which thousands of UK pensioners sunk hundreds of millions of pounds, because it could not find enough evidence to prosecute.
The SFO, which launched a probe after administrators discovered over 100 million pounds ($165 million) was missing when the company was pushed into administration in 2009, said on Tuesday it would now focus efforts on tracing lost assets.
"In the last quarter of 2010, we reviewed all of the information and intelligence we had on our Keydata case and cases related to it," it stated. "After extensive consideration, we concluded that we had insufficient evidence to secure a prosecution in this case." The agency, which plans to provide a further statement in July, blamed an "error in internal communications processes" for its failure to regularly update victims -- many of whom have still not been compensated for their losses -- in one of the worst personal investment scandals in Britain in decades.
Once an award-winning company, Keydata sold products backed by second-hand U.S. life insurance policies -- so-called deathbonds -- to around 30,000 mainly elderly investors, pitching them as "low-risk" with almost guaranteed returns. Investors ploughed more than 450 million pounds into the business. [ID:nLDE68R1BB]
But the Financial Services Authority (FSA), eyeing how Keydata was marketing products backed by the risky life settlement market, fast-tracked the firm into administration for breaching tax regulations in 2009 and put PwC in charge.
All eyes are now on two investigations launched by the FSA; one into Keydata's practices and one into its rags-to-riches Scottish founder Stewart Ford for possible misconduct.
Both investigations have yet to be concluded.
COMPENSATION
Since last April the Financial Services Compensation Scheme -- Britain's safety net for investors when regulated businesses fail -- has paid out more than 300 million pounds to victims.
The FSA has also fined Norwich & Peterborough Building Society, which was one of the most prolific sellers of Keydata products, 1.4 million pounds for giving "unsuitable advice" and ordered it to pay 51 million pounds in compensation to victims.
The SFO declined to divulge why it could not pursue its case, although PwC has said the underlying assets linked to three of Keydata's bonds invested in Luxembourg-based group SLS Capital -- one of two special purpose vehicles that packaged Keydata products -- had been "liquidated and misappropriated".
But the SFO has few resources and the alleged orchestrator, colourful entrepreneur David Elias whose businesses spanned from Brazilian rainforest assets to a luxury private members' club run out of Malaysia, died in Singapore in 2009.
Tuesday's statement brings to a close an expanded fraud investigation that also scrutinised Lifemark, a second Luxembourg-based group that packaged Keydata products, and Keydata itself -- both of which were founded by Ford. Ford, a multi-millionaire now settled in the Swiss city of Geneva, who earned vast commissions from the Keydata businesses, said last year he was not surprised the SFO had expanded its probe but that there was nothing for them to discover.
He has maintained that the commissions he earned were in line with general practice in the life settlement market, and that he too had been duped by Elias.
He blames the FSA for the failure of Keydata and Lifemark, which is also in administration. "We have no doubt that but for the FSA intervention all Keydata investors in Lifemark and SLS products would have received their promised returns of income and capital," said a Ford spokesman. ($1=.6071 pounds) (Editing by Greg Mahlich)