Privilege Wealth offered unregulated corporate loan note investments paying 9.85% per annum for a term of three or five years (based on an archived version of privilegewealthlp.com from March 2016). It described these as “low-risk, insured notes”. Investors’ money was to be used to fund payday loans in the United States.
Privilege Wealth PLC has now collapsed and entered administration, with Stephen Katz of David Rubin & Partners appointed as administrator. A statement of affairs was filed with Companies House on 26 February 2018.
According to the Statement of Affairs, Privilege Wealth PLC owes £42 million to various unsecured creditors, of which by far the largest amount, £28.4 million, is owed to Privilege Wealth One LLP, which is believed to represent investors who invested in its loan notes.
To meet these claims, Privilege Wealth PLC has £2,205 in the bank and a £2,353 VAT refund. All its other assets are listed by the administrator as of uncertain value. Under “Estimated to Realise” the administrator lists the total estimated assets as £4,558.
While some of its assets with “Uncertain” value, which include “Shares & Investments” (book value £9.5 million, actual value Uncertain) “Promissory Notes Receivable” (book value £16.3 million, actual value Uncertain) and “Promissory Notes Interest Payable” (book value £17.3 million, actual value Uncertain) may yet return some money, investors would be wise to manage their expectations.
Unless significant amounts can be realised from these assets of Uncertain value, the cash in the company will first be used to pay the administrator’s fees (the administrator always stands in the queue) and investors are at risk of 100% loss.
Who were Privilege Wealth?
The statement of affairs shows that Privilege Wealth plc was owned 20% by Bowline Private Fund in the Cayman Islands, 40% by Mark Munnelly (European Operations Director according to privilegewealthlp.com), 30% by Martin Sampson (Director) and 10% by Tomasz Pawelek (Director). Who controls Bowline Private Fund is not known.
Banned director Brett Jolly (who was banned from acting as a director for his conduct while acting for Anglo-Capital Partners Limited, a collapsed carbon credit scam) was also a Limited Partner of the Privilege Wealth One Limited Partnership. In a “letter to the editor” to Offshore Alert, he vehemently denies any wrongdoing, and says that while he was “very much involved with them since early on in their evolution”, his role was limited to “introductions to commissioned sales people” and that he was not an “owner” of Privilege Wealth.
Also part of the organisation was Christopher Burton, who ran a call centre for Privilege Wealth in Panama. In April 2017, Burton was shot three times in an assassination attempt. After recovering from his injuries, he awaits extradition to Spain for his role in a boiler room scam in Marbella.
“Low-risk” “insured” notes?
Privilege Wealth claimed on its website “Re-insurance of 95% of all utilised capital by “A Rated” insurers and “95% of Capital insured against loss”.
On http://privilegewealthlp.com/insurance.html, it provided further detail:
“100% of the Capital Value of each Loan Note (with a 5% deductible) is insured against “Default” and “Wrongful Act” by the General Partner”, and includes the following types of cover:”
There then follows a long list of types of cover, but the one of most interest to investors is
- Default by the financial institution, the General Partner (and Partnership) in terms of the non-payment of 100% of the principal Capital Value of each Loan Note as loaned by any Loan Note Holder or Limited Partner to the General Partner (and Partnership) as agreed and signed in any Loan Note transaction between the General Partner and the respective Limited Partner.
However, this page then finishes off
* This is a broad terms description of the insurance policy for illustrative purposes only. The only contractual reference to insurance in contained in the policy itself.
Whether investors will indeed receive 95% of their capital back looks extremely unlikely at this stage.
This illustrates that when an unregulated bond is described as being “insured”, investors cannot assume that this will give them any protection against losses unless they have obtained watertight professional due diligence on the insurance contract, and on the insurer providing the insurance, and are therefore confident that the insurance will in fact pay out in the event of capital loss.
Privilege Wealth successfully sued David Marchant of the well-known scam awareness blog OffshoreAlert.com for £80,000 after Marchant described Privilege Wealth as a fraud. The judge described this claim as “baseless” and stated that Privilege was “clearly not a fraud”.
Privilege had only claimed damages of £50,000, but the judge awarded £80,000 against Marchant, because Marchant had signalled his intention to ignore the judgment and continue publishing the material.
Less than a year after this judgment, Privilege Wealth has collapsed.
So much for “truth is an absolute defence”?
Not really. Firstly, Marchant didn’t enter any defence, relying on the fact that a UK libel judgment couldn’t be enforced against him in the United States. Secondly, it is still not established that Privilege was a fraud. (The long list of allegations made by Brett Jolly against the scheme to Offshore Alert doesn’t look good, but they are as yet unproven.) Running a failed investment is not fraud.
I don’t say this to excuse Privilege; I say this because time and again we see people justifying investment in ultra-high-risk investments with the rationale “if it wasn’t legit, the police or the regulators would shut it down”. If you invest in ultra-high-risk unregulated investments, neither the police, the regulators nor anyone else are going to save you from losing your money.
According to the administrator’s statement, the lawyers who won that libel case for Privilege, Lewis Silkin LLP, are still owed £45,000. They must now join Privilege’s investors at the back of the queue.