(Bloomberg) -- H2O Asset Management is seeking to avoid a UK fine by offering payoffs to irate clients who have been prevented since 2020 from accessing investments that were then worth about €1.6 billion ($1.7 billion).

The firm, with offices in London, is in talks with regulators about how much to set aside, as part of their probe into a scandal over illiquid securities linked to controversial German financier Lars Windhorst, according to people familiar with the matter who spoke on condition of anonymity.

The final euro amount to compensate holders — whose investments are still tied up in seven vehicles known as side pockets — could run into nine figures, according to one of the people. It may be reduced if the Financial Conduct Authority ultimately decides to fine H2O, the person said.

The total sum would be split between those ready to enter into a transactional agreement with H2O right away and those who wish to pursue a claim through other means, the person said.

Britain’s markets watchdog is following in the footsteps of its counterpart in France, which issued in early 2023 a record €75 million penalty for H2O — whose relevant funds were regulated under French law. That amount cut into a €200 million pot that H2O previously said it had put in escrow to compensate holders and pay any penalties.

The FCA and H2O declined to comment.

In France, investors grouped together in the “Collectif Porteurs H2O” initiated litigation in 2023 at the Paris Commercial Court. That also targets a unit of Natixis SA that was formerly majority owner of H2O, KPMG over its involvement as an auditor and Credit Agricole SA’s CACEIS, in its role as custodian.

Holders who agree to enter a transactional agreement with H2O to get compensation are likely to be required to drop any litigation against the fund.

Read more: Bruno Crastes Goes From H2O’s Investing Hero to a Man in Limbo

The regulatory probes are part of the fallout from a crisis of confidence among H2O clients after the Financial Times wrote in 2019 about the scale of illiquid investments in companies linked to Windhorst. As the crisis deepened with the start of the coronavirus pandemic, H2O was forced by France’s Autorité des Marchés Financiers to freeze some of its funds. 

For years, H2O had been an admired London outfit run by a team of Frenchmen who produced remarkable returns and swelled assets under management to more than €30 billion.

H2O said it managed €11.6 billion at end 2022, and Natixis has now sold a large chunk of its stake back to management, with the intention of selling the rest in the coming years. 

--With assistance from Lucca de Paoli, Jonathan Browning and Alexandre Rajbhandari.

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