London Capital & Finance roundup: administrator fears 80% losses, and did the FSCS say that LCF is covered?

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Two months after London Capital and Finance was shut down, it has finally dawned on the big media players that over 10,000 people potentially losing £200m in life savings in a scheme with links to minor politicians is big news.

Two recent episodes from the BBC have covered London Capital & Finance; a further episode from Radio 4’s Money Box programme, and a regional news investigation from Inside Out South West.

Little on the programmes will be news to investors who have been following the case closely.

The most significant part of the Money Box programme is an update from administrator Finbarr O’Connell, who says that early indications are that investors should expect 80% losses as a “base figure”, with a “worst case scenario” being even less than that.

O’Connell says that while some of LCF’s underlying borrowers are being co-operative (Independent Oil & Gas is specifically named, and not for the first time), recovery from other LCF borrowers, whose assets include leisure property and bloodstock (racehorses), is highly uncertain.

He goes so far as to say that the returns necessary for LCF to pay its bondholders in full – 44% for a 1 year bond and 19% per year for a 5 year bond – were “unbelievable”.

Did the FSCS confirm that LCF was covered by them?

There is a brief mention of an investor who wrote to the Financial Services Compensation Scheme 18 months ago asking if LCF was covered, and who showed Moneybox a letter he received in response which says, according to the investor and his lawyer, that LCF is covered by the FSCS.

As I don’t have a copy of this letter and am going by third-hand information I’ve heard on the wireless, it is difficult to analyse.

However, I would be amazed if the letter said anything more that as an FCA-authorised company, the FSCS would potentially apply to LCF as a firm.

This is not enough for FSCS compensation. To be compensated you need a “protected claim” against an FCA-authorised company. All protected claims are against FCA-authorised companies but not all money owed by an FCA-authorised company is a protected claim.

In general a default on an unregulated loan notes is not a protected claim, even if it was a loan to an FCA-authorised firm. Though as regular readers of Bond Review will know, the waters have been muddied in the past.

The FSCS has recently confirmed that it is not accepting claims from London Capital & Finance investors at this time.

The Plymouth MP on the Surge payroll

The register of interests for Johnny Mercer, Tory MP for Plymouth Moor View, reveals that he has worked for Crucial Academy Limited since 18 September 2018.

Crucial Academy is part of the group of companies that includes Surge Financial and RPDigitalservices, the firm that ran LCF’s call centre and the two “comparison websites” that drove the most traffic to its website.

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Johnny Mercer MP, pictured with some Pensioners who still have their money (to our knowledge).

Both Surge Financial and Crucial Academy Limited are registered to the same office in Brighton at 3rd Floor 19a Portland Street. Both share a director, Stephen John Jones (also director of RPDigitalservices and a number of other Surge companies).

According to the most recent confirmation statements at time of writing, Crucial Academy Limited is 100% owned by The Crucial Group Limited. This in turn is owned 40% by Surge Group plc, 25% by Paul Careless, 25% by founder Neil Williams and 10% by George Carlo. Surge Group plc is owned 100% by Paul Careless.

This gives Paul Careless, the CEO of Surge, an overall 65% controlling share.

Mercer receives £85,000 a year for 20 hours’ work a month, equivalent to a full-time salary of almost £600,000 a year (based on a full time job being 35 hours a week). He claims he has no dealings with Crucial Academy’s sister company Surge, or the man who owns 65% of his side hustle, Paul Careless.

The Inside Out programme revealed that the honourable member has refused to step down from his Crucial Academy post. Well, you’d have to be a pretty honourable member to wave bye-bye to a £350 an hour gig.

Having only been incorporated in February 2018, Crucial Academy is yet to file accounts, meaning it is not known how Johnny Mercer MP’s £85,000-a-year salary is funded.

In other political news, Work & Pensions Secretary Amber Rudd received a £5,000 donation from former LCF director Simon Hume-Kendall in December 2018. Parliamentary records suggest this is Hume-Kendall’s first political donation since he gave a bottle of brandy to Strictly’s Ann Widdecombe in 2010.

What next?

On the Money Box programme, O’Connell stated that the administrators expect to submit their initial proposal between 25th and 27th March.

With O’Connell’s revelation that 80% losses are the “base” scenario, it is clear that standard procedure for investors in collapsed unregulated investments applies. Expect nothing, and treat any recovery from the administration as a bonus.

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5 thoughts on “London Capital & Finance roundup: administrator fears 80% losses, and did the FSCS say that LCF is covered?

  1. Surely the ‘Ball park’ figure he gave was based on the information he had at the time, correct me if I am wrong but he also said in that programme words to the effect that although the administrators were talking to one company, sorting out the other companies was a (my understanding of what he was trying to convey) complicated ‘tangled web’ that needed to be unravelled indicating that this was going to be a long investigation. My memory is lacking here but didn’t he also mention something about administration fees and costs?

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  2. I agree, also what about the money frozen in LCF accounts a the time of FSCS investigation??

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  3. The money frozen in LCF accounts is almost certainly part of O’Connell’s 20% “base” figure. That will have been the easiest to count up and account for.

    Exactly how much is in LCF’s bank accounts will be revealed in the statement of affairs due to be published at the end of the month. You would expect it to be minimal however. If you need to generate returns of over 40% per year then the last thing you want to do is have an excessive float on deposit, earning nothing.

    I’m sure the administrators will be looking closely at exactly how money was flowing in and out of LCF’s bank accounts.

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  4. Thank you Brev,
    when the statement is posted from the administrators what time scale are we likely to expect before funds could be paid to the bondholders?

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