(Bloomberg) -- Once-famed fund manager Neil Woodford was hit with a warning notice by the UK’s financial regulator, which said he had a “defective and unreasonably narrow understanding” of liquidity risks in the lead-up to the collapse of his fund. 

The Financial Conduct Authority said it planned to take enforcement action against the stock picker and his defunct firm Woodford Investment Management, according to a statement Thursday. A warning notice is issued before the FCA comes to a final decision. 

Lawyers representing both Woodford and the firm said they disagree with the findings, which they called unprecedented and misconceived, and they plan to challenge them. 

Woodford’s fund empire collapsed in June 2019 after a series of large withdrawals led to its suspension, trapping thousands of investors and around £3.7 billion ($4.6 billion) in assets. Woodford was ousted as manager of the fund in October of that year, and announced he would shutter his investment firm, a stunning fall that counts as one of the most dramatic in London’s financial history. 

In the notice, the City watchdog said Woodford failed to ensure that the fund had a reasonable and appropriate approach to the fund’s liquidity when making investment decisions even in the face of ongoing redemptions and fund outflows.

The FCA also censured fund administrator Link Fund Solutions, saying it failed to ensure that investors could access their funds at short notice. It has since overseen a £230 million compensation program.

Link Fund Solutions’s job was to properly manage the Woodford Equity Income Fund and to protect investors’ interests, said Therese Chambers, joint executive director of enforcement and market oversight. 

“Their failings led to losses for those trapped in the fund when it was suspended,” she said in the statement. The FCA held off fining Link millions of pounds to ensure that compensation reached investors instead.

Woodford’s lawyers indicated that they would also seek to pin the blame on the administrator saying that Link had responsibility for setting the fund’s liquidity framework.

(Updates with details of Woodford’s lawyers’ comment in last paragraph.)

©2024 Bloomberg L.P.