Administrators Duff and Phelps have released their initial report into collapsed property minibond scheme Blackmore.
Of £46 million raised from investors, director Patrick McCreesh has estimated in a Statement of Affairs that less than £5 million is likely to be realised to pay them back.
Investors’ money was moved to a series of Special Purpose Vehicles which then invested in property developments. These SPVs borrowed more money from other sources, such as short-term bridging finance providers, whose loans would have been on very high interest rates.
In March 2019 Blackmore stated that “Our business model is entirely on track and current return on capital employed averages 54 per cent”. How it went so quickly from being “entirely on track” and generating 54% ROCE, to being unable to pay interest six months later and collapsing with (at least) 90% losses is unclear.
The £5 million that McCreesh estimates can be realised from Blackmore is less than the £9.2 million that would have been paid to their marketers Surge in commission. Surge ran Blackmore’s back office and marketing efforts, the same job they carried out for London Capital and Finance. (Blackmore’s December 2017 accounts suggested that Surge were paid 20% commission on virtually all the funds raised by Blackmore.)
Overseas efforts fail
In the aftermath of the collapse of London Capital and Finance, the FCA “made enquiries directly of the Company in relation to its business operations” in March 2019.
Blackmore subsequently lost its “Section 21 signoff” – the approval of its financial promotions by an FCA regulated firm that allowed its bonds to be marketed within the UK. In April 2019 it closed to all new investment from the UK, and, in an attempt to source funds from overseas, opened an office in Dubai, with further offices planned for Tokyo and Hong Kong.
To be clear, there was nothing to legally stop Blackmore from finding another FCA-regulated firm to sign off its promotions and continue sourcing investment from within the UK – provided its bonds were promoted only to high-net-worth and sophisticated investors (as they always should have been).
The inescapable conclusion is that Blackmore’s decision to stop taking money from all UK investors was to keep the FCA off their backs. Meanwhile the FCA crossed its fingers and hoped that overseas investors would somehow invest enough in Blackmore to avoid another scandal involving tens of millions of losses to UK investors.
I’m not seeing another reason to refuse to market to UK investors, even when it is perfectly legal and compliant to do so, while still taking money from overseas investors.
How did that go? The administrator’s report notes that “further minibonds totalling £2,331,340” were issued to overseas investors – so about 5% of the amount that had been raised before Blackmore closed to UK investment.
There is no indication that Blackmore had had any contact from the FCA prior to March 2019, despite the FCA being well aware that Blackmore Bonds were being systematically missold to retail investors since at least March 2017.
“Capital guarantee” schemes
The administrators note that Blackmore’s bonds were supposed to be covered by insurance policies in the event of default, from Ion Insurance Group S.A. for Series 1 bonds and Northern Surety Company, SRL for subsequent bonds.
Whether any funds will be recovered from these policies is described as “uncertain”. There is a long history of unregulated investments being marketed as being covered by insurance, which for one reason or another doesn’t pay out.
[Deleted at poster’s request. -Brev]
I can’t say for sure whether posts here and on other sites help but I hope so. If the investor does zero research beyond the scam company’s web site then it’s not going to help, but anyone doing a Google search will hopefully come across it. As a test I searched for “Strongbox investment” (just because it was the latest article) and this site came up second.
If it made no difference I doubt the companies would be getting so agitated and keep threatening Brev with lawsuits. So I suspect people are saying no to them on the phone after reading an article here and it’s getting under their skin.
[Deleted at poster’s request. -Brev]
There’s no jury here, there’s just me. I decide whether to maintain this blog so the only person whose opinion matters on whether it makes a difference is me.
I started Bond Review on the philosophy that if one investor avoids losing a life’s worth of savings as a result of me spending an hour or two writing a review, that’s a good trade. That still stands two and a half years later.
Most investors who read my review on Blackmore and decided not to invest would not have bothered to leave comments. It’s the silent majority at work. I know how it works because I’m part of it. I’ve read a million reviews in my lifetime and have never once bothered to spend three seconds commenting “thanks, this was useful” or even spend half a second clicking the “Did you find this review helpful?” button. (However, I do answer texts asking me to rate my deliveryperson or call centre worker, because I know their pay depends on those.)
I would disagree that “Blogs like this are most likely read, in the main, by people who don’t need the warnings”. If you’re the kind of person who didn’t need the warnings, you’d have dismissed or ignored Blackmore’s ads out of hand and wouldn’t have bothered putting “blackmore bond reviews” into Google.