Privilege Wealth “possibly a Ponzi scheme” say administrators

The administrators of the collapsed Privilege Wealth investment scheme, which offered unregulated bonds paying 9.85% per year, have filed a Notice of Administrator’s Proposals with Companies House on 23 March.

A detailed breakdown of the reasons for the company’s collapse can be found in the full administrator’s report, but here is the executive summary: Privilege Wealth invested investors’ money in a Panamanian pay day loan company run by a man wanted by Interpol (who was later shot), as well as other pay day loan books run by Rosebud Lending, a Sioux Indian sovereign nation lender, and a company called The Oliphaunt Group. None of these investments paid a return.

With the lack of returns and running costs of $550,000 a month, described as “rental and payroll” (so presumably this does not include the 9.85% per annum that Privilege had promised to investors), collapse was inevitable.

What is left is a range of payday loan books held by Privilege Wealth after the failure of its subsidiaries and the companies it invested in. The value of these loan books is described by the administrators as uncertain.

Complicating any chance of recovery for individual investors is that Privilege Wealth’s second-biggest creditor, Helix Investment Management (which is owed £8.3 million, compared to £28.4 million owed to Privilege Wealth One LLP, believed to represent investors in Privilege Wealth’s bonds) is claiming security over some of Privilege Wealth’s assets, such as the Rosebud loan book.

If Helix’s claim is successful, these assets will not be available to compensate other creditors. The administrators continue to maintain a dialogue with Helix.

“Possibly operated as a Ponzi scheme”

A line that jumps out of the report is paragraph 2.46, which states

The Joint Administrators’ findings at this early stage would lead them to believe that the Privilege group was possibly operated as a Ponzi scheme, with only an estimated $9m invested into actual assets out of a total $40m of capital raised from investors. Investigations continue in this regard.

It’s quite remarkable that a High Court Judge, in the libel case of Privilege Wealth v David Marchant, could have described Privilege Wealth as “clearly not a fraud”. Yet only six weeks into the administration (barely enough time to make a cup of tea in forensic accountancy terms), the administrators feel sufficiently sure of their ground, when administering a collapsed investment formerly run by people known to be litigious, to describe it as a possible Ponzi scheme.

We can only hope that the next time an ultra-high-risk unregulated investment uses its investors’ money to sue an independent blogger, the High Court will be more cautious before endorsing the ultra-high-risk unregulated scheme. It is true that the judge had little option but to award the case to Privilege Wealth, because Marchant elected not to defend himself. There was, however, no need to go above and beyond this by endorsing the scheme as “clearly not a fraud”.

This libel case is commented on in passing by the administrators, who say

During the Autumn of 2016 articles were published on a financial reporting web site, Offshore Alert, suggesting that the whole operation was an investor scam and warning against investment into the business. The directors advise that this compounded the cash flow issues.

“This compounded the cash flow issues” translates as “We ran out of new investors’ money to pay off old ones with. Also, it’s this guy’s fault for telling everyone that we were running a Ponzi scheme, not ours for running a Ponzi scheme.”

The whereabouts of the other $31 million of capital raised is not known.

Since I last reported on Privilege Wealth’s administration, the administrators have recovered a total of £18,000, mainly from cash received when the Rosebud investment failed and Privilege Wealth took over Rosebud’s loan book. The administrators are working on a percentage basis, with 30% of all recoveries to be paid to the administrators.

Whether there will be sufficient recoveries to repay any significant amount of the £28 million owed to Privilege Wealth investors looks highly uncertain – whether or not Helix Investment Management succeeds in claiming some of Privilege’s assets for itself.