Reader Sally Jones has drawn my attention to some eye-opening posts over the past year from collapsed unregulated car park investment scheme Park First’s Russian Instagram account.
All quotes below have been machine translated from the original Russian.
In December 2017 the Financial Conduct Authority shut down Park First’s original incarnation, which promised “guaranteed” returns of 8% in the first two years followed by returns of 10% and 12%, on the grounds that it was an unauthorised collective investment scheme.
Park First was however allowed to continue in operation, having restructured as a “lifetime leaseback” arrangement offering fixed returns of only 2% a year plus a variable dividend.
A dividend is a payment to investors out of company profits. Dividends cannot be paid if there are no profits.
After the shutdown, Park First continued to use its Russian Instagram account to promote the scheme to Russian-speaking investors. Parkfirst.ru served up a series of posts featuring seminars, characteristically jolly promoter Lola Chinieva, and eye-catching meme-type images.
Park First continued to project total returns of 7-10% per year in its promotions, despite the inherently unpredictable nature of dividends.
The yield of 7-10% per annum in pounds sterling consists of:
💰 fixed rental income 2% per year
💰 dividends from the operation of parking spaces. Dividends are calculated at the end of the year and are divided among investors in proportion to the number of parking spaces owned.
On average, the total annual income is 7-10% in pounds.
On 11 March 2019 Park First’s Instagram published an “official response” to an unspecified Bond Review post, probably my April 2018 article covering Group First’s red-ink-splattered accounts for the 2017 accounting year.
The machine translation isn’t very helpful but the gist of Park First’s response was that “referring to the financial statements of one year 2017, without trying to figure out what figures are reflected in it, is not quite correct”. Park First attempted to persuade investors that they should not worry about its net liabilities as “the income of future periods are not indicated”.
What stands out is this statement:
Existing investors were offered a choice: switch to a new interaction scheme or sell parking lots to the company, having fully returned their money.
The company fulfilled its obligations to investors who left in full.
Investors who choose to stay already receive rental income and dividends.
(Original Russian: Действующим инвесторам был предложен выбор: перейти на новую схему взаимодействия или продать компании парковочные места, полностью вернув себе деньги.
Обязательства перед вышедшими инвесторами компания выполнила в полном объеме.
Инвесторы, выбравшие остаться, уже получают рентный доход и дивиденды.)
Following Park First collapsing into insolvency, we now know that Park First’s claim that “the company fulfilled its obligations to investors who left in full” is not accurate.
If Park First are attempting to use a definition of “fulfilling its obligations” that doesn’t mean “giving investors their money back”, it’s unlikely anyone else reading their announcement would have read it that way.
In addition, it’s not clear how Park First managed to pay dividends when it has never reported a profit and it went into insolvency a year and a half after its forced restructuring by the FCA.
Another Instagram post from December 6 2018 makes it clear that Park First’s idea of what constituted a “dividend” differed dramatically from both the general understanding of the word and UK company law.
Until December 20, the promotion is valid
Customers who purchase more than 2 parking lots 🚕🚕 can save 30% on the cost 💰!
What does this discount consist of?
🚩 10% discount on the initial cost
🚩 payment of dividends of the 1st and 2nd year 10% paid immediately
Thus, the client acquires parking spaces at a discount of 30% and begins to receive income from the third year according to the formula 2% fixed + dividends.
You cannot pay someone two years’ worth of 10% dividends in advance. Dividends must be paid out of company profits and you can’t pay someone a 10% dividend when you haven’t generated the profit yet.
Not that knowing that is of much use to Russian Park First investors now, who are now stuck waiting for the outcome of the administration along with all the other investors.