The administrators of the collapsed unregulated bond scheme Privilege Wealth have filed the first of their six-monthly updates.
The full administrator’s report can be viewed on Companies House.
Readers will recall that one of Privilege’s main underlying investments was the loan book of a company called Rosebud which extended payday loans to the Sioux Indian Tribe of South Dakota. Since the administrators’ initial report, the administrators have succeeded in recovering $87,000 from a Rosebud escrow account (£63,000).
Some further small sums recovered from various parties bring the total funds recovered from Privilege to £91,000. The administrators are due 30% of all recoveries, and this plus legal and other costs take the net amount recovered to £51,000. With Privilege’s Wealth’s debts identified as £4.2 million, clearly this will not go far among the creditors.
The administrators are still trying to gain control of the Rosebud loan book itself. However, while the administrators believe that Privilege has obtained the legal right to the loan book, the data as to who Rosebud loaned money to is in the hands of another creditor, Oliphant Group, whom the administrators believe may be collecting money from the Sioux Indians.
Readers will also recall that another company, Helix, is seeking to enforce its own claims against Privilege Wealth’s assets. At the time of the initial proposals to creditors, Helix and the Privilege Wealth administrators had agreed in principle to co-operate, but the most recent update confirms that “a satisfactory agreement has not been reached to date”. A definitive and satisfactory response has also not yet been provided over the current position regarding Helix enforcing their alleged security.
According to the administrators, it appears that Helix is controlled and/or directed by one of Privilege’s former directors, Peter Stokes, who resigned as a Privilege director in May 2017.
In addition to Rosebud, Privilege made further investments into distressed credit card and bank debt through its US subsidiary, Privilege Direct Corp. Helix is also claiming security over this asset, and has already commenced legal proceedings in Florida.
The prospect of any significant recoveries for Privilege Investors would appear to rest on whether
- a) Privilege can gain control of the Rosebud and Privilege Direct loan books and
- b) whether the loan books, which consist of payday loan and “distressed” (i.e. sub-prime) debt, are worth much of anything in the first place.
An insurance claim has also been made by Peter Stokes on behalf of both Helix and Privilege in respect of an insurance policy against “capital shortfall” from an insurer, Independent Risk Solutions Limited, in the small Atlantic island of Bermuda. The administrators appear uncertain as to whether this insurance policy is likely to result in any funds for investors, noting only that further investigation is required.
The administrators have not repeated their finding in their original report that Privilege was “possibly operated as a Ponzi scheme” (on the basis that Privilege only invested $9m out of $40m investors’ money into actual assets). Which is to be expected. The administrators’ job is to maximise recoveries for creditors, not to solve the philosophical angels/pin question of how little an investment scheme can invest of its investors’ money before it crosses the line from poorly-run but perfectly legal failed investment scheme to illegal fraud.
The administrators do reveal that they have submitted a report on the conduct of Privilege’s directors to the Department for Business, Energy & Industrial Strategy, but this report is confidential and the contents are undisclosed.
One notable potential source of recoveries that the administrators have identified is the recovery of costs from Privilege Wealth’s successful libel action against David Marchant, editor of Offshore Alert, who publicly denounced Privilege as a fraud shortly before it collapsed.
Readers will recall that Marchant lost the case by default, by not turning up in the UK to defend himself, instead relying on the fact that a UK libel judgment couldn’t be enforced against him in the US. The courts awarded legal costs of £80,000 against David Marchant, which he remains due to pay to Privilege, at least in the eyes of the administrators and the UK libel courts.
The administrators are keeping the matter “under review” and say they will revisit the question of whether they can enforce this debt once recognition proceedings are finalised.
So the Privilege administrators, who have already described the company they are managing as a “possible Ponzi scheme”, are apparently considering whether to chase David Marchant for a legal debt he owes because he accused Privilege of being a Ponzi scheme.
Presumably if the case had to be re-run in front of a US court, Privilege’s administrators would have to argue that Marchant libelled Privilege by describing it as a fraud whereas it was really only a possible fraud.
Privilege’s administrators have a statutory duty to claim any money they can legally get their hands on for the benefit of Privilege’s stricken investors. So if it was feasible to collect 80 grand from Marchant, the administrators are duty-bound to give it a go. But I rather suspect that this is another receivable that will not come to anything.
The administrators will be due to file their next report in six months’ time.