Cauta Capital files accounts; £7 million of creditors, £70 million of investments parachuted in?

Cauta Capital issues unregulated bonds paying 7-11% interest with a 10 year term.

The company has recently filed its accounts for the year ending April 2018. Due to Cauta's small size, they were unaudited and did not include a profit and loss account.

The accounts show net assets of £70 million, consisting predominantly of £70 million of investments under "Fixed assets" (described later as "a portfolio of listed shares"), a further £7 million of current assets, minus £7 million of creditors (i.e. bondholders). Which seems like a pretty healthy financial position.

The accounts however immediately raise the question; where did this £70 million in investments come from?

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London Capital & Finance: Is Smith & Williamson’s softly-softly approach in the interests of investors?

London Capital & Finance logo

In Sunday's interview between Smith & Williamson's Finbarr O'Connell and Paul Lewis of BBC's Money Box show, O'Connell made clear that the administrators would be treating London Capital & Finance's underlying borrowers with kid gloves to ensure they didn't damage the ability of the borrowers to repay.

PL: So again it depends on those 12 companies [the handful of companies which borrowed from LCF] succeeding in what they're doing and not failing. FO'C: Absolutely, and nobody amongst administrators or listening to this has any interest in those companies becoming distressed, so we want to work with them on a very co-operative basis to ensure we get back the bondholders' money.
On the face of it, Smith & Williamson being "very co-operative" with LCF's underlying borrowers makes sense. For starters, the administrators may not have the right to demand the money back anyway, as a term for repayment will have been agreed at outset. Even if it can call in LCF's loans, it makes no sense to do so if the borrowers aren't currently in a position to pay it back in full, as long as they will be later.

The other option on the table is to sell the loans to a third party, on which the administrators would certainly have to take a loss, which again makes little sense if the borrowers can be relied on to repay the capital and interest in time.

There is one glaring problem with this logic. For some of LCF's borrowers, if they repay any capital or interest, it will be the first time they have ever done so. Research by Drew J of Damn Lies and Statistics showed that in at least one case, LCF loaned money to a dormant company, CV Resorts Limited, whose published financial results subsequently did not change for four years. This is only possible if the company was not trading, and paying no interest on its loan. Otherwise you would see movement in the balance sheet.

Smith & Williamson can be "very co-operative" with CV Resorts Limited by continuing to allow them to hold LCF investors' money without paying anything back, and in doing so they can say that the loan is still performing. (If I've borrowed money on the basis that I don't have to pay anything back for however long, and I don't pay anything back in that time, then I've met my obligations and the loan is performing.) But it doesn't recover anything for investors.

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London Capital & Finance administrators get off to unpromising start

London Capital & Finance logo

It has only been a week since four practitioners at Smith & Williamson were appointed as administrators of London Capital & Finance - by London Capital & Finance itself - but already the administrators have made a poor start in reassuring creditors that they are on their side and not the people who appointed them.

First, on the second day of their appointment, Smith & Williamson referred to London Capital & Finance's investors as "sophisticated or high net worth" in a statement to Professional Adviser.

Exactly how many of LCF's investors qualify as high net worth or sophisticated will only become clear when the FCA or the administrators get round to reviewing what evidence LCF has retained on file that its investors did, in reality, meet those criteria. FCA regulations require them to hold such evidence for any investors who invested on that basis (COBS 4.12.9 onwards).

For the moment, however, it is clear from the FCA's Second Supervisory Notice, and the personal statements of LCF investors on the Facebook action group and elsewhere, that a significant number of LCF's investors did not qualify as high-net-worth or sophisticated. Given that this contributed to LCF calling in administrators in the first place, parroting the idea that LCF's investors were mostly high-net-worth or sophisticated when the administrator has not had nearly enough time to establish that is a clear blunder.

Smith & Williamson has since rowed back from its claim that LCF investors were HNW/sophisticated, saying it should have been better worded.

This statement was then followed by an interview on the BBC's Money Box programme on Sunday 3rd Fenruary between BBC presenter Paul Lewis and Smith & Williamson's Finbar O'Connell. After a brief interview with an LCF investor (who made it very clear that he was not a sophisticated investor, and had invested money that he couldn't afford to lose), and a brief overview of the numbers, O'Connell made an astonishing statement: Continue reading...

London Capital & Finance: what happened and when?

London Capital & Finance logo

After London Capital & Finance recently admitted that it was insolvent and put itself into administration, bringing a three-year career of persistent misselling to an end, now seems a good time to look back upon its short life - and what the FCA did about it during that time.

July 2015: An obscure company called Sales Aid Finance (England) Limited renames itself London Capital & Finance, despite being based in Tunbridge Wells, about 20 miles away from Greater London's outskirts. This appears to have signalled the launch of its new business model.

October 2015: A member of the public asks the Moneysavingexpert forum about LCF after coming across them while Googling for "investment ideas". The forum is unanimous in advising them not to invest.

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London Capital & Finance goes into administration

London Capital & Finance logo

London Capital & Finance has gone into administration, with four practitioners from top-10 accountancy firm Smith & Williamson appointed as administrators.

According to a FAQ on the LCF website, LCF applied for the administration itself. After the FCA froze the company's assets and censured LCF for persistently misselling its high-risk unregulated bonds to retail investors,

3. As a result of the above, LCF has been unable to raise further monies from investors. 4. Professional advice was sought and the Company was advised that LCF was insolvent and that it should be placed into administration to provide the best outcome for Bondholders and other creditors. The Company was also advised that in order for some independent party to be able to deal with the Company’s assets for the benefit of the Bondholders and the other creditors that the directors should place the Company into Administration such that the Administrators could perform those essential functions. As LCF is an FCA regulated firm, the consent of the FCA is required for the directors of LCF to resolve to place the Company into administration. Accordingly, the consent of the FCA was duly sought and obtained.
The news broke on the Smith & Williamson company website yesterday. The news seems to have crashed Smith & Williamson's servers, as the smithandwilliamson.com website is unresponsive at time of writing. Continue reading...

Money & Co IFISA Portfolio – is it covered by the FSCS?

The P2P platform Money & Co has launched a "Money & Co Portfolio" service, which can be held via an Innovative Finance ISA.

Money & Co is a "pick your own" P2P platform through which investors lend money directly to firms raising money via the platform. With the "Portfolio" service, investors' money is managed by Bramdean Asset Management who invest in a range of loans offered by the Money & Co platform.

Money & Co Portfolio's literature advertises "Fixed rate returns of 7% after fees".

Eagle-eyed readers will have noticed that I briefly warned against a possible clone scam, based on misleading advertising and the use of a newly-registered URL which was different to Money & Co's usual one (moneyandcoportfolio.com rather moneyandco.com). Money & Co has confirmed that the offer is genuine and not a clone firm scam. My concerns over misleading advertising, however, remain.

Continue reading for a review of Money & Co's portfolio service.