It’s been nearly a year since MJS Capital (known as Colarb Capital since October; to avoid confusion, for the rest of this article we will continue using their original and less silly name) started to fail to pay investors’ interest and capital on time, something it has blamed on “banking issues”.
Investors are now being told that to receive their funds back, they must switch from MJS’ bond series 3 or 5 to Colarb bonds series 4. Investors have been promised that if they do, quarterly interest payments will resume and they will receive their (already overdue) capital back after a year.
The information memorandum for the new Colarb bonds describes a business model which is essentialy unchanged from the original MJS model; funds are to be invested in arbitrage and “delta neutral” trading.
The literature claims that “ColArb Capital Plc was incorporated… to provide accelerated returns for other investments” which is pretty brazen given that “accelerated returns” is the exact opposite of what MJS investors have experienced over the last year.
Colarb representatives are claiming that MJS investors whose funds are already due for full repayment must switch to the new Colarb bonds to receive their funds back. This raises two very important questions:
- If Colarb has sufficient funds (and open banking channels) to make interest and capital repayments to “Colarb 4” investors, why can they not make repayments to investors in the original MJS bonds?
- MJS has already had a year to resolve its issues and has apparently not done so. What exactly is supposed to have changed when repayment of the new bonds falls due in 2020?
An email sent to investors by MJS Capital CEO Shaun Prince in July 2018 waxed lyrical about the company’s performance – despite the fact that it had already been in default of interest payments for several months by this point.
The email claims that in late 2017, MJS Capital put in an “indemnity cover” that “works in a very similar way to a performance and capital guarantee.”
Prince explicitly compares MJS Capital’s insurance cover to the Financial Services Compensation Scheme and suggests MJS Capital’s insurance policy is even better, because it has a limit of £30 million rather than the FSCS’ £50,000 or £85,000.
Prince’s claim that MJS Capital has secured insurance cover equivalent to (or better than) the FSCS is, to put it mildly, complete nonsense.
No insurer insures unregulated investment schemes against all risk of loss. If they wanted to take on the risk they would invest in the company’s bonds and get the same return offered to bondholders, rather than just an insurance premium.
If an insurer did agree to cover an investment against all loss (known as a credit default swap), the premiums for this policy would bring the offered return of the investment down to the risk-free rate.
The original MJS Capital literature referred to insurance policies the company had in place against trading counterparty failure and third party fraud. If MJS Capital has taken out a further £30 million insurance policy, it is likely that this insurance is along similar lines, with the insurance applying only in very specific circumstances that would not cover MJS Capital running out of money. Needless to say the insurer is not named.
As a further carrot to encourage investors to defer asking for their money back, Prince’s email claims that this new insurance policy does not apply to investors in their current bonds, but that investors can switch to new bonds which are covered.
Prince finishes off by claiming that MJS Capital is in the process of applying for a stockmarket listing, which he expects to be easy thanks to the due diligence already conducted by the unnamed insurer. MJS Capital is also to launch new investments in cryptocurrency and medicinal cannabis.
Prince previously claimed in March 2017 that MJS Capital would be listed on the London Stock Exchange “in the coming months”. These months appear to be a long time in coming. There is no public evidence of any stockmarket listing application by MJS / Colarb Capital.