The interminable saga of London Capital and Finance returned to the newspapers this week when John Glen, secretary to the Treasury, provided an update to the Sunday Telegraph on the announcement that the Treasury would set up an ad-hoc compensation scheme to compensate LCF investors who have so far missed out.
The update, three months after the compensation scheme was announced at the cig-end of 2020, is that there is no update at all.
John Glen, economic secretary to the Treasury, told the Sunday Telegraph that the compensation scheme is at the top of his agenda.
“I want to do it as soon as I can,” he said.
“Clearly, it’s been three months since I put down a written ministerial statement, that’s a significant amount of time.
“I want to move it forward, and I will do so as soon as I possibly can. But I can’t give a categorical assurance on a date today.”
City A.M.
This is not a decision that requires a lot of head scratching, nor can the Treasury claim it is waiting for more information, two years since the FCA-authorised Ponzi scheme collapsed.
From the moment LCF collapsed, the options available to the Government have always been:
- refuse to pay compensation (as the Government usually does when unregulated and pseudo-regulated investment schemes collapse – albeit mostly because they don’t often take in £240m and make the national press)
- find a novel interpretation of the rulebook that allows compensation to be paid while claiming this is how it’s supposed to work (the Independent Portfolio Managers option)
- admit the system has failed and form an ad-hoc compensation scheme (the Allied Steel, Barlow Clowes, Equitable Life etc etc option)
So far the Government has preferred an awkward halfway house where people have been compensated essentially at random. Or for reasons so arcane that they are indistinguishable from random.
This has become increasingly untenable the more compensation has been paid out, at the expense of those who pay levies to the Financial Services Compensation Scheme, i.e. everyone who uses financial services, i.e. you and I.
The latest figures suggest that £3 of every £4 invested in LCF is being bailed out (albeit from a sample size of only 25% of funds invested, so this could change dramatically). If that holds, the concept of moral hazard has already been thrown out the window.
So what is preventing the Treasury from making a decision? “We’re busy” isn’t an explanation, as delaying a decision that the Secretary of the Treasury has already announced creates more work, not less, as you still have to make the decision eventually but you also have to issue explanations for the delay on top.
Unless the Treasury is hoping that London Capital and Finance’s stable of duff investments manages to find a deposit of unicorn dust in the North Sea which magically pays out all investments, delaying a decision for three months achieves nothing.
The ideal scenario for all of us is if compensation for LCF investors was announced alongside a comprehensive overhaul of UK securities laws to require all investments offered to the UK public to be registered with the Financial Conduct Authority – as has been the case in the USA for almost 90 years.
The prospect of bailing out yet another collapsed unregulated scheme would be a less bitter pill for the regulated financial sector (and by extension the general public which banks, saves and insures itself with it) if it had a genuine reason to believe that it would be less likely to happen again, and result in a smaller bill when it inevitably does.
Such an undertaking would require a lot of work behind the scenes and could not be announced at the drop of a hat. It could also not be more timely as the UK plots its recovery from the pandemic, a recovery that would be significantly stronger if the UK sloughed off its reputation as the scamming capital of the developed world.
Alternatively, the Treasury could announce that it’s time to move on, lessons have been learned, and the UK will recover from the pandemic by having National Savings and Investments offer Covid bonds at 2% per year (maximum investment £5,000 per person).
I understand that the investors who were affected were taken in by professional salesmen with a polished pitch, a professional-looking company and the 10% returns carrot. However, these people ended up making very poor financial decisions without taking any financial advice and everyone else is going to pick up the bill.
There are plenty of other investments that have similarly folded. Blackmore Bonds, Premier Children’s Services, Dolphin Trust etc. where the investors are going to get next to nothing back.
That the LCF investors managed by sheer luck to back the right losing horse must be galling for investors who are not going to get a bean.
It wasn’t the polished pitch of some salesman that swung it for me, although the person that visited me at my house was very eloquent and believably ‘trustworthy’ I thought at the time. I learnt much later that every word he spoke was a lie, even the so called fact that LCF were FCA regulated was a partial lie because he didn’t tell me the bond I was being coaxed into buying wasn’t regulated. The hundreds of U.K. businesses that he told me my investment would be loaned to didn’t exist and if I’d have known that in fact he wasn’t one of the financial directors as this was how he introduced himself at my front door, when he actually worked as a salesman for a completely different company called Surge I wouldn’t have invested at all, especially if I had known that this company Surge was creaming off 25% of my investment. To add insult to injury the HMRC then went on to give LCF an ISA status so given all this information I feel fully justified in receiving full compensation but you of course think I’m just some greedy pensioner who should have known better.
“When will the Government put LCF investors and levy-payers out of their misery?” the short answer is “when Nelson gets his eye back.”
The victims of the Ark scam back around 2010/2011 (some 10 years ago now) were conned by a highly qualified FCA regulated adviser – Stephen Ward of whom much has been written elsewhere – into a scheme referred to as Pensions Reciprocation Plan. I am not going into it here. Too long. It is summarised here: https://www.thepensionsregulator.gov.uk/-/media/thepensionsregulator/files/import/pdf/dn2116109.ashx section 6.
Anyway, HMRC decided the PRP was actually an unauthorised withdrawal and decided victims were going to be taxed at 55% of the valueof the loan and even if you didn’t take a loan you were still going to be taxed as if you did! Go figure.
In 2015 Jack Straw raised this in the House (6 years ago!) https://www.theyworkforyou.com/debates/?id=2015-03-11b.371.0
Two victims of the Ark scam gave oral evidence to the December 2nd 2020 sitting of the Parliamentary committee on pension scams https://committees.parliament.uk/work/457/protecting-pension-savers-five-years-on-from-the-pension-freedoms-pension-scams/ it is worth watching.
My understanding is that only now are HMRC appeals beginning to take place for those victims, to bring closure, once and for all the stress and anxiety they have endured all this time under the sword of Damocles. This is in addition to losing their residual pensions through toxic investments by the architects of the scheme. Some victims have even committed suicide. I for one hope the outcome is positive for the victims and brings to an end this sorry tale.
There is an emotional written submission on the parliamentary committee for pension scams website (PPS0012) regarding the Ark scam: https://committees.parliament.uk/writtenevidence/11161/pdf/ from a Financial Adviser – this is well worth a read.
So maybe we will see LC&F victims being “put out of their misery” around 2030? That is if Ark is any kind of yardstick.
No salesman for me either, I wouldn’t have listened to one.
Trusted FCA and HMRC (I bought a ISA) not to have authorized a ponzi scheme.
The return was 8 % so expected some level of risk but a total fraud should not have got by the regulators.
Yes, very many people were taken in, initially, by slick talk. But equally they were taken in by a flawed system which allowed L C & F to state that they were regulated by the FCA, consumers having no idea that their products were not and therefore they, the investors, would not be entitled to compensation from the FSCS. Consumers had already built in their own risk assessment on that premise.
Crucially, as evidenced time after time in the Dame Elizabeth Gloster report, the FCA ignored warning after warning, thus resulting in many more investors being sucked in or reinvesting.
Had the FCA. done it’s job properly then none of us would have suffered losses. All we get from those senior management within the FCA is “yes we failed you and we are sorry”. Small recompense.
Mr Andrew Bailey the then CEO of FCA even gets promoted, as have other failing managers within the organisation. No one has resigned or been dismissed. The Dame Elizabeth Gloster report into the failing of LCF put the blame squarely with the catastrophic failing of the FCA to act when it should have done in 2015
We were told a complete pack of lies in the Promotional Material!!
(1)The Security Trustee claimed to have 120 years experience, when in actual fact at the time of FCA regulation it was just several months old & a “dormant” company. This was created by Solicitor Robert Sedgwick of Buss Murton Law who was also either a Director or secretary on the “borrowing” or connected companies.He later handed control to CEO of LCF Andy Thomson after 27-3-18 who was then was the shareholder via his company Oracle Limited based in Malta.
https://find-and-update.company-information.service.gov.uk/company/09846126/persons-with-significant-control
(2) The promotion stated the company Solicitor as Buss Murton llp (registered in Companies House as OC301808 LLP) It had been in administration since 2008 as a result of a £2,590,991 unpaid debt !! It was fianally struck off in 2015 & did not even exist at the time of regulation !!
https://find-and-update.company-information.service.gov.uk/company/OC301808/insolvency
GCEN (GC Partners) who handled the initial investment money from new investors just happens to also to share the same registered address in Malta as LCF’s CEO Andrew Thomson.
Jim Dolan of FCA regulated Sentient Capital London ltd who approved the promotion,just happens to be a former Hoodless Brennan Beaufort securities director
Instead of investing into 100’s of SME’s The borrowers were either themselves or closely connected
All these should have raised red flags !! the FCA failed to act by approving LCF for regulation when it is clear it’s intention was Fraud !!
As a result of this investors have been led into a false sense of trust & have lost many millions due to the FCA’s incompetence.
LCF Director Martin Binks was also a director on Anglo Wealth Limited & Assett Life there’s even a warning on the FCA’s own website,as far back as 2015
https://www.fca.org.uk/news/warnings/anglo-wealth-limited-t-anglo-wealth-investments
https://find-and-update.company-information.service.gov.uk/company/09144715/persons-with-significant-control
This is the reason the Government should be liable to pay investor’s full compensation for their losses !!
I understand criticism is generally unwelcome, even more so if you have lost your retirement savings. However, if investors had taken regulated financial advice either they would be in line for compensation or more likely would have been advised to steer well clear of LCF.
You would shake your head with pity if someone you knew bought a car a car from a bloke in a pub car park on the basis that “it is a sweet runner”. Making crucial investment decisions without regulated financial advice is of the same level of foolhardiness.
The FCA should not be held to account if people ignore its advice to engage with a professional when making important financial plans.
Financial advice is not free but the cost of it is insignificant compared to making bad financial decisions.
When investors contacted the FCA they were told that it was a regulated company. If you are told by the regulating body that the company is regulated then surely you are taking sound advice. The regulator was warned, unbeknown by investors, in 2015 that the company is a problem, but they did nothing. Sorry yes they did something, they regulated the company! The report indicated MANY occasions when the FCA failed to act on issues that were clearly there, and because they didn’t it allowed the company to raise over £200m from investors after it was regulated. The FCA should be held to account as it FAILED to look after the people it is there to look after. The previous comment about a car purchase is really spurious.
“… if investors had taken regulated financial advice …”
This is the heart of the issue. The con-men (and women) providing the “advice” – even though they will later claim they were not providing advice – purport to be qualified financial advisers and in general the victims are often not sufficiently knowledgeable either to spot the con or discover the person(s) they are dealing with is not regulated. LC&F were (if I understand it correctly) FCA authorised anyway even thought the advisers were not. Moreover, the other Surge promotion, Blackmore Bonds, the marketing material had section 21 signoff and so many victims would not have understood the subtle meaning of S.21 signoff and again believed, rightly or wrongly, the FCA were regulating the investment.
When you listen to victims telling their stories, time and time again they actually believed these investments and the material were regulated by the FCA. This is the issue. Many people were conned and it is easy for knowledgeable people to criticise and say “if investors had …” but the truth is, investors really believed they “had”.
These investments were not being marketed in the financial services equivavalent of “a bloke in a pub car park”. They were highly organised cons with professional marketing materials and sales persons that came across as professional. It wasn’t the “pub car park” equivalent. So imho, the analogy doesn’t work.
So whilst it is true to say “Financial advice is not free but the cost of it is insignificant compared to making bad financial decisions.” victims did not know they were making bad financial decisions.
Victims are guilty of nothing more than ignorance and that is why they get targetted.
Do we want to be a society that says “you were ignorant, so tough luck you only have yourself to blame” or a society that seeks to protect the vulnerable from the con-artists and scammers? If the former then there is no reason to have an FCA at all, just rely on survival of the fittest and the ignorant lose out. If we want to be a society that protects the vulnerable then we need a functioning FCA and other agencies, that do what they are chartered to do – protect retail investors – and if they don’t then they need to be held to account.
Update:https://www.gov.uk/government/publications/london-capital-finance-compensation-scheme
and
Wed (21st April):
Formal meeting (oral evidence session): The Financial Conduct Authority’s Regulation of London Capital & Finance plchttps://committees.parliament.uk/event/4301/formal-meeting-oral-evidence-session/
So anybody who hasn’t already got 100% compensation from the FSCS will get 80% of their money back from the government (up to £68,000). LC&F investors are extraordinary lucky compared to those in all the other similar schemes that failed. What a difference it makes to be in the media spotlight.
But at the end of the day all that has happened is money has moved from the pockets of taxpayers to scammers. One day maybe the FCA will act to stop them setting up in the first place instead of waiting to fail. But I doubt it.
FSCS does not pay 100% compensation if the 100% loss is greater than £85,000. So the £68k cap is 80% of £85,000 which has always been an FSCS ceiling. But yes, LC&F investors are indeed lucky compared to other victims and on facebook at least, there are a lot of Blackmore Bond victims who cannot see why they can’t get the same treatment.