Prominent UK businessman Sir Keith Mills has launched a high profile attack on Coutts after the private bank allegedly advised him to invest in the crisis-hit AIG Life Enhanced Fund.

In a public letter published on his action group website, Sir Keith claims that Coutts recommended the investment as being a safe way to protect his capital which would provide “instant access” to his money.

He also alleges that when he queried the safety of keeping his money with AIG, which was subsequently bailed out by the US government, Coutts said it “did not have concerns about these bonds.”

The AIG Life Enhanced Fund, into which high net worth UK investors had sunk around £5 billion, was frozen in September and closed last week.

Faced with receiving only 87 per cent of the face value of their total holdings in the Enhanced Fund, 95 per cent of investors chose to transfer their assets into another AIG investment vehicle that will mature in 2012.

Sir Keith said: “If we try to withdraw our cash now, we face the prospect of losing large sums of money. Or, secondly, we have our money tied up with AIG for three and a half years, with no certainty that our money will ever be returned, and little prospect of earning any additional interest.

“This is why I have set up The Coutts AIG Action Group. To look at how all Coutts customers who have similar grievances against Coutts - regarding holdings of AIG Life Premier Bonds - may be able to hold Coutts to account and obtain fair compensation from them.”

Coutts has emphatically denied any allegations of mis-selling.

“At the time of sale it was made clear that the investment was low risk, not risk free, and it was explained that the value of the investment could go up as well as down,” a spokesperson said, adding that Coutts has been lobbying AIG to obtain the best outcome for its clients.

Coutts is far from alone in having sold AIG Life bonds to its clients and future months could see more household name institutions embroiled in the controversy surrounding the fund. Earlier in December, a spokesperson for the action group AIG Victims told WealthBriefing that there are “a number” of legal actions in the pipeline.

Sir Keith’s claims against Coutts could prove however to be particularly problematic from a political point of view. 

Coutts’ owner, Royal Bank of Scotland, was the subject of a government bailout, raising the prospect that any compensation granted to high net worth investors would ultimately come from the UK taxpayer.