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The Independent - SRM, the hedge fund that was Northern Rock’s biggest shareholder, has joined forces with 150,000 small investors to mount a legal action against the Government over the nationalisation of the stricken bank.

The Monaco-based fund and the UK Shareholders Association have requested a judicial review of the Government’s compensation scheme for shareholders, which they argue has been rigged to leave investors with nothing.

They have asked the High Court to investigate the conduct of the Treasury, the Bank of England and the Financial Services Authority in providing lender-of-last-resort backing to Northern Rock in September as well as the period leading up to nationalisation in February.

The litigants will seek to cause maximum discomfort for the authorities by asking for minutes of meetings between the authorities to be made public, as well as the report on Northern Rock produced by Goldman Sachs for the Treasury.

RAB Capital, which built a large stake to become the Rock’s second-biggest shareholder, is considering joining the action. Legal & General is expected to join as an interested party next week. A combined action would represent holders of about half the bank’s shares.

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