Asset Life plc update: unjustified payments made to connected parties

The administrators of collapsed minibond firm Asset Life plc released their latest quarterly update in February.

Asset Life plc raised £9 million from investors from 2014 onwards. It ran out of money and stopped paying investors in November 2018, and collapsed into administration shortly after.

Its Chairman, Martin Binks, was briefly a director of London Capital and Finance from October 2015 to August 2016. Binks is also a director of Anglo Wealth, a firm described as an “elegantly packaged scam” by a Crown Court judge. Binks has not been accused of any wrongdoing in relation to his work at LCF or Anglo Wealth.

Some of Asset Life investors’ money was funnelled to Anglo Wealth, in return for investments passed from Anglo Wealth to Asset Life plc to settle the resulting debt. The administrators stated in the initial report that they are investigating the relationship between Anglo Wealth and Asset Life, but have not specifically provided an update on this subject in the latest report.

At the time of its collapse Asset Life plc held two investments, a Kyrgyzstani gold exploration company and an Armenian iron ore extraction company. The administrators have not been able to find buyers for either investment and the only realistic prospect of selling the shares is to the other shareholders or connected parties.

The administrators are holding discussions with lawyers as to whether there are any other avenues for recovery but remain schtum on what they might be.

The administrators raise significant concerns about how Asset Life plc was run. The company did not even have its own bank account, instead running investors’ money through “a network of receiving and payment agents”.

There were “numerous movements between connected party bank accounts which do not appear to have an underlying business justification”.

They also continue to investigate the literature on which Asset Life’s bonds were promoted to investors, the “nature of the Company’s assets” and the “destination of the funds raised from debenture holders”.

Insurance

The administrators’ initial report made no mention of the supposed “Lenders Guarantee” that Asset Life plc claimed would protect investors’ capital.

The latest update confirmed that the cover for Series A and B bondholders is in reality worthless. The insurance was with GEF Guarantee Equity Fund Limited, an Israeli subsidiary of GEF Guarantee Equity UK Limited. The UK company had already gone bust in 2015, despite Asset Life plc’s website continuing to advertise the supposed insurance contract with them.

Enquiries continue into the insurance arrangements in place for Series C bondholders. Whether this is the insurance with Klapton Insurance of Anjouan formerly mentioned on Asset Life plc’s website is not clear from the report.

Ineligible investors

According to the administrators, many of Asset Life plc’s investors “clearly do not meet the criteria of investors eligible to participate in these types of investments or to have the schemes promoted to them” – i.e. investors who meet the regulatory definition of sophisticated or high net worth.

UK regulations required Asset Life plc and any introducers to verify that their investors were in reality high-net-worth or sophisticated, if it wished to rely on the relevant exemptions for promoting unregulated investments (COBS 4.12.9 onwards).

The FCA issued a warning in May 2019 – after Asset Life plc had already collapsed in November 2018 – that Asset Life plc might be conducting regulated activities without authorisation. (What those activities might be is unclear – issuing minibonds is absurdly not a regulated activity.)

The FCA has taken no further action over the promotion of Asset Life plc’s bonds to ineligible investors that is publicly known.

7 thoughts on “Asset Life plc update: unjustified payments made to connected parties

  1. Let’s be clear that the COBS rules only apply to FCA-authorised entities, so Asset Life itself, and any other unregulated marketer, aren’t subject to them. Those parties only need to have a reasonable belief that recipients of financial promotions are entitled to receive them – there’s no verification or similar ‘hard’ requirement – so, if someone’s clicked through a warning box that says “yep, I’m a self-certified sophisticated investor”, I’m not sure there’s any enforceable duty to make further enquiry.

    I’m not going to pretend I’m happy about any of that, but it is the way the world works right now. Anyone upset about that should hassle their MP and HM Treasury, because they’re the only people that can make a difference.

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  2. Correct me if I am wrong but my understanding is the COBS rules are implementing UK legislation, FSMA 2000 – as updated by subsequent statutory instruments.

    Regulated or otherwise, I believe the legislation must by complied with by all.

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  3. Stephen’s understanding mirrors my own. If you could ignore all investment regulations simply by remaining unregulated, and claim that all your clients are high-net-worth/sophisticated when they aren’t because being unregulated means you aren’t subject to the regulation stating that has to actually be true, the law is an ass.

    The regulations are very clear that firms relying on high-net-worth / sophisticated investor exemptions in order to promote investment securities without being regulated by the FCA must be able to prove their investors actually qualify as such.

    If a company habitually uses introducers which break the law to source investment they are ultimately responsible.

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  4. To my mind the problem isn’t whether laws have been broken, but who prosecutes the guilty. The FCA washes their hands of it because they are not regulated, or considers that as the company is no longer operating that’s a “win”.

    The administrators don’t consider prosecutions to be anything to do with them, except where money has been stolen from the company when they might try to recover it from individuals but even then only if there is a realistic chance of the recovery outweighing the cost.

    The administrators may well pass a few of the more obvious cases of illegality to the police but the police have a poor record of successful prosecutions in complex fraud cases, and they rarely don’t have the manpower or inclination to pursue them.

    Of the above the I believe it should be the FCA who prosecute using what the administrators have discovered as a starting point. But sadly they just aren’t interested.

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  5. @Fraid Knot – Sadly I agree. The FCA have a very poor record of prosecuting offenders. Scams are Low Risk, High Reward ventures for scammers because they know the risk of prosecution is very low.

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  6. I feel the COBS issue is a red herring. I feel the point remains, it was unlawful to promote this investment to unsophisticated/low net worth investors. But as Fraid Knot says, who will prosecute the wrongdoers? Sadly, I doubt anyone will be prosecuted and this makes the legislation not worth the paper it is written on.

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