Taking into account the various channels through which people affected can seek compensation, the government will… set up a scheme to assess whether there is a justification for further one-off compensation payments in certain circumstances for some LCF bondholders.
John Glen, Economic Secretary to the Treasury
“Various channels” is a reference to the essentially random basis on which the Government has paid out compensation to LCF investors so far.
Investors who have managed to secure compensation far include people who transferred stocks & shares ISAs to LCF, but not cash ISAs (because there were too many of the latter because of some random nonsense about “regulated investments” being different from “designated investments”). It also includes people who managed to persuade the FSCS that LCF gave them advice (despite not being a financial advice company, not being authorised to provide advice, and employing no financial advisers).
The LCF investors who were told by the Financial Conduct Authority’s call handlers that LCF was legit and FSCS-protected also appear to have a decent chance of being compensated individually by the FCA. Although the Gloster report mentions several cases, this is likely to be only a handful of LCF’s 11,600-odd.
The FSCS has paid out about £50 million so far, representing just over a fifth of the amount lost in LCF.
How much the Treasury’s new scheme will pay out is unclear. Based on what little has been announced so far, it could be anything from zero, if the Treasury decides enough has already been done (although that would make the Treasury’s announcement, and the raising of investor hopes, rather pointless), to full compensation along the lines of the FSCS, perhaps with a cap. More details are expected in the New Year.
If we assume the Treasury’s scheme isn’t pointless, then of the three options available to the Government to justify paying compensation I outlined in an article a year and a half ago, it appears that we are staggering towards a mish-mash of all three. (1. Compensation for bad advice, 2. Compensation on a novel re-interpretation of what the FSCS covers a la Providence Bonds and Secured Energy Bonds, and 3. An ad-hoc, one-off compensation scheme in recognition of regulatory failure.)
Whether compensation is paid by the FSCS, the FCA or the Treasury is of academic interest, as fundamentally the bill lands on the kitchen table of the general public either way. (The category of FSCS levy payers, i.e. anyone who uses financial services, is indistinguishable from the category of taxpayers, although IFAs and others who get billed by the FSCS personally will have a different perspective.)
Whether the Four Horsemen of LCF or the nine other executives sued by LCF’s administrators will be repaying any of the investors’ money is as yet unknown. The lawsuit was launched in September and there’s been little further news since.
Regardless of what legal justifications are found, fundamentally the rationale for bailing out LCF investors is the same old rule: if enough people believe that an investment is risk-free, the Government has to spend everyone else’s money to make it so. See also final salary pension schemes, Barlow Clowes, Equitable Life, IceSave, etc etc.
2021 may be the year that LCF joins that list, depending on how far the Treasury decides to go.
Much of the report is devoted to an update on the running of Signature Living’s hotel properties and the sale of assets, but the expected outcome for retail investors and all other unsecured creditors of the company remains total losses.
Based on current information it is anticipated that there will not be sufficient realisations to enable a dividend to unsecured creditors. […] This position may change dependent on future realisations, quantum of claims from secured and preferential creditors and the costs of the Administration.
Retail investors initially loaned money to other Signature Capital entities, which fall outside the scope of the administration, but with a guarantee provided by Signature Living Hotel, which is the company in administration. The administrators advise retail investors to seek repayment from the Signature entity their contract is with in the first instance.
The administrators reveal that an attempt was made to transfer all the assets of Signature Living Hotel and its subsidiary companies to a new legal entity. This has now been reversed following legal and tax advice. When this was done is not stated, but it must have been between January 2020 (when Signature Living Hotel filed a confirmation statement declaring no change of ownership) and April 2020 (when the company collapsed into administration).
As part of the initial review it was found that the shares in both the Company and all the subsidiary companies had been transferred to a new legal entity that had been set up by the Director to replace the Company as the ultimate parent of the wider Group.
After discussions with the Director, and following legal and tax advice, these transfers were reversed, and the Company has resumed its role as the ultimate shareholder of the majority of the entities in the wider Signature group.
The rationale behind the aborted transfer of the group’s assets is not revealed by the administrators.
When totting up Signature Living Hotel’s unsecured creditors, the administrators originally included a £10 million contingency for claims by retail investors on Signature Living Hotel’s corporate guarantee. So far, claims of more than double this (£20 million) have been received from retail investors.
The administrators note that a group of retail investors is in discussions with Signature owner Lawrence Kenwright in an attempt to formulate a restructuring plan. The administrators comment that they have received no details as yet and cannot comment on the viability of any such plan.
Signature continues to secure positive coverage for itself in the trade press despite losing tens of millions worth of investors’ money. A recent article in Boutique Hotelier claimed that the opening of a new hotel in the Signature Group, Rainhill Hall, represented “a bid to transform its fortunes after a difficult year”. Signature owner Lawrence Kenright claims “it’s an exciting time for Signature Living”.
While the article waxes lyrical about Signature’s “Grade-II listed country house following a renovation project that has seen 14 new bedrooms installed, plus a new spa and a handful of ‘fairytale’ treehouses built in its 18 acres of grounds”, it seems unlikely that a hotel in St Helens is going to change the picture for Signature Living’s investors. Rainhill Hall is not subject to the Signature Living Hotel administration.
Despite Signature having promoted its investments directly to investors without FCA authorisation via emails and its website, which claimed that its high-risk unregulated loans represented “a fantastic return in a secure environment”, no action has been taken by the Financial Conduct Authority against the Signature scheme that is in the public domain.
The administrators’ costs currently stand at £446,000 plus £14,000 of expenses.
As is standard, the identity of who objected to the striking off is not known, but the obvious candidates are one of the companies’ respective creditors (including HMRC).
Both companies remain overdue with their annual accounts (by 16 months and 7 months respectively), a criminal offence carrying potentially unlimited fines for the directors personally.
In practice this is almost never enforced in the UK.
Had the striking off notices not been suspended, both companies would have been struck off the register and their assets forfeited to the Government. Companies House retains the right to resume the striking off process if either company continues to fail to file accounts.
Troubled bond issuer Minerva Lending plc was also briefly subject to a strike-off notice but this is to be suspended today, a week after being issued. Minerva, which advertised its unregulated bonds as “high fixed returns with the security of asset-backing“, has defaulted on repayments to investors and remains overdue with its annual accounts.
On Thursday 17th, Dame Elizabeth’s Gloster’s long awaited report into the £237 million collapse of London Capital & Finance was published.
The report is damning and makes very clear that the FCA bears a large part of the blame for LCF accumulating, and losing, as much investor money as it did.
Furthermore, the following is, in the Investigation’s view, self-evident: had some or all of the FCA’s failures in regulation outlined in this Report not occurred, then it is, at the least, possible that the FCA’s actions would have prevented LCF from receiving the volume of investments in its bond programmes which it did. For instance, had possible irregularities by LCF been detected (and their significance appreciated) by the FCA42 sooner than late 2018, then the FCA should, in the Investigation’s view, have intervened (or taken other regulatory action) earlier.
This has been widely covered in the press, along with the apology from Andrew Bailey, who was head of the FCA throughout much of LCF’s lifespan, and was rewarded for its failure by being kicked upstairs to the job of Governor of the Bank of England.
Here are some edited highlights for those who want a bit more detail than the headlines, without reading the full 494 page report. This is not intended to be a full summary of the report (so you’ll have to forgive me for skimming over accounts of high-level supervision discussions at corporate away days, important as they are) but a list of the most interesting / juiciest bits for ordinary investors.
LCF was waving red flags from day 1, but its accountants didn’t notice
Accounting behemoth PriceWaterhouseCoopers told the FCA in November 2017, on being replaced by another firm of auditors, that there were no matters to bring to the FCA’s attention. The fact that LCF was paying 25% commissions and had no investments with a realistic hope of paying sufficient returns to fund 25% commissions and 8% interest to bondholders apparently wasn’t deemed worthy of notice.
A chartered accountant hired to review the historic information submitted by LCF to the FCA found “red flags” and inconsistencies in financial information that could have been spotted as early as 2016. It also found that the information provided to the FCA by LCF continually indicated that LCF could not meet its liabilities without raising further investment.
It noted that LCF had to charge up to 29% annual interest to its underlying borrowers to fund its commission and interest payments, and this made no sense considering LCF claimed to be engaged in secured lending with low loan-to-value ratios – such borrowers would have no need to pay such high interest. [A11]
The FCA told potential investors that LCF was not a fraud, and FSCS protected
An elderly (septuagenarian) investor was told by the FCA that LCF was “unlikely to be operating fraudulently” as it was FCA-authorised. This was not an isolated incident. [A6 4.2 and 6.7]
A call-centre worker who did advise a potential investor to be “very cautious” and report LCF to Action Fraud, having correctly identified the misleading nature of LCF’s promotions, and subsequently raised concerns with the FCA’s Supervision division, was slapped down as “in error”. They were told that there was already an article on the FCA’s intranet to say that they were “already aware of this issue” and that LCF was not in breach. [4.6-4.7]
A limited number of FCA call-handlers incorrectly advised LCF investors that they would be protected by the Financial Services Compensation Scheme. [6.2]
Potential investor: It does sound too good to be true doesn’t it?
FCA call handler: Let’s have a look… So that’s [London Capital and Finance] coming up as authorised and regulated, so that’s absolutely fine. That means if you wanted to invest with them, you’d be protected by up to £50,000 by the Financial Compensation Scheme.
Transcript of call between a potential LCF investor and an FCA call handler. [C12 2.36]
FCA action against LCF was limited to watering down their misleading advertising
The FCA first contacted LCF with concerns over how its bonds were being marketed in January 2016. At the time LCF’s website claimed LCF was “100% protected”. This was amended following the FCA’s intervention.
Despite LCF’s misleading promotions, the FCA took no follow-up action to verify a) that all LCF’s investors qualified as high-net-worth and sophisticated and that it could produce evidence to confirm this, and b) that it was lending investor money to a diverse portfolio of SMEs as it claimed. A cursory investigation would have revealed that neither was true, and led inevitably to LCF being shut down before it caused £237 million in investor losses.
The FCA’s previous intervention into LCF’s misleading financial promotions were not flagged up during LCF’s application for FCA authorisation. [A8 10/5/16]
Further FCA intervention into LCF’s misleading financial promotions took place in September 2016, this time over lack of past performance disclaimers and warnings about the illiquidity of the investment. Again there was no follow-up after LCF mollified the FCA by amending its website. [A8 Sep16]
In January 2017, LCF disclosed to the FCA that it paid 25% commission on funds invested by bondholders. This commission was not disclosed to bondholders. The FCA apparently didn’t see anything alarming about this. [A8 26/1/17]
In October 2016, LCF applied for permission from the FCA to hold client money. In a dim corner of the FCA’s collective mind, a lightbulb went on: “why would a firm dealing with corporate finance want to hold client money?” This led to LCF being subjected to an “Enhanced” risk assessment process (the 2nd most rigorous out of 4 classifications), during which the FCA asked detailed questions of LCF. In June 2017, LCF threw in the towel in its attempt to gain permission to hold client money.
In response, the FCA downgraded LCF to the “Standard” risk channel (the 2nd least rigorous out of 4) and from then on accepted all LCF statements and responses at face value in regard to its application for regulatory permissions, including in relation to the security of its loans. [C9 6.9]
The FCA consistently treated LCF’s unregulated bonds as not its problem
The report finds that, in the multiple times that the LCF crossed FCA desks, it repeatedly failed to examine LCF’s unregulated business or consider the investment scheme holistically (as a whole). [C2]
In the wording of the report, the “FCA’s approach to its regulatory perimeter was unduly limited” and “the FCA did not sufficiently encourage its staff to look outside the Perimeter when dealing with FCA-authorised firms such as LCF”.
The “regulatory perimeter” is internal code for the FCA’s cultural attitude of “if it’s unregulated it’s not our problem”. As per the statutory objectives given to the FCA, unregulated investment schemes promoted to the public very much are the FCA’s problem, and the Financial Services and Markets Act specifically empowers the FCA to act on such schemes, using court action if necessary where its statutory powers are insufficient.
FCA staff members responsible for reviewing LCF’s application for regulatory status had no accountancy qualifications, and training to analyse company accounts was “on-the-job”. (I.e. non-existent; when it comes to authorising financial firms so they can promote themselves directly to the public, doing the job with no training is not training.) [C2 2.6a]
According to a supervisor, there is little training on how to identify financial crime within the FCA’s Supervision division. [C2 2.6b]
LCF partly fell through the net because responsibility for its regulation had been transferred from the Office of Fair Trading (which formerly regulated consumer credit) to the FCA. 50,000 such firms were subject to a “limited strategy”. As a result, from 2014 to early 2019, LCF was subject to no proactive supervision by the FCA. [C2 3.5]
The FCA failed to see anything untoward about the fact that LCF was generating no revenue from the regulatory activities it had applied for permission to do. (This was, of course, because LCF applied for FCA authorisation purely to use it as a “seal of approval”, and to allow it to access the ISA market.) [C2 3.2]
The FCA treated LCF’s repeated breaches of financial promotion rules as separate cases, rather than considering whether these repeated breaches could indicate poor systems and controls or even misconduct. [C2 3.7b]
A number of members of the public contacted the FCA identified correctly
that LCF’s literature was misleading
that LCF’s published accounts raised questions over its financial viability, contradicted LCF’s claims to have loaned money to numerous SMEs,
that LCF had conflicts of interest between itself and connected companies
Whenever these reports from the public were escalated, they continually foundered against the FCA’s “it’s unregulated so it’s not our problem” regulatory perimeter.
An internal FCA report from 2013 identified that there was a risk of minibonds such as LCF’s slipping through the cracks. “In addition, if they [are] not sold on an advised basis, it seems that it would not be a sector team issue. This is a risk as there is a possibility that this issue is overlooked as each sector might consider it beyond the scope of their remit.” [Translation: nobody’s been given the job of looking at minibonds so every FCA team will say “more than my job’s worth”.]
The report also noted the increasing amount of money that was going into minibonds, and that misselling of minibonds via lack of risk warnings was endemic. It is unclear whether this report was ever acted on by or even reached senior FCA management. [C7 2.2]
There is no evidence that the FCA took any steps to check whether LCF’s bonds were sold only to high-net-worth and sophisticated investors. [C7 2.6]
FCA senior bureaucrats shirk responsibility
In its response to the Investigation, the FCA claimed that the Investigation was unfairly using the benefit of hindsight. [C1 10.3b]
As the Investigation notes, this is of course false, as per its accountant’s report which showed that there was more than sufficient cause for further investigation and intervention as early as 2016.
The FCA also claimed that it would have taken a forensic accountant to spot the red flags in LCF’s financial information. [C9 6.21]
As the Investigation notes, this is also patently incorrect. Plenty of lay members of the public managed to spot the issues in what little financial information LCF released, including the lack of evidence for its claim to have loaned out hundreds of millions to SMEs with asset security. Many took their concerns to the FCA.
The FCA ignored red flags in LCF’s provided financial information, ignored its own interventions into LCF’s misleading advertising, and has then had the nerve to claim nobody could have seen it coming at the time. It’s a bit like running your car over someone and then claiming “well it’s easy to say I should have seen them now they’re in the rear view mirror”.
The FCA claimed “the draft report had not adequately recognised that the FCA must necessarily prioritise and take a risk-based approach”. Or, to translate, “what’s all the fuss about? It’s only a piddly £237 million.” [C1 10.3]
In a paragraph straight out of an episode of Yes Minister, the FCA told the Investigation that it would be wrong to assign responsibility for the failings over the FCA to individuals, on the grounds that a) it might deter people from wanting to be FCA senior bureaucrats, b) that investigations such as these are supposed to focus on institutional failures and not individual ones, c) the very concept of responsibility is ambiguous. [C1 11]
As the Investigation pointed out, this attitude is at odds with the FCA’s own “Statements of Responsibility” and “Management Responsibilities Map”, implemented in 2016 after the Treasury recommended that the FCA should apply the same framework to itself that it applies to the senior management of banks.
For all the failings in the report, the most glaring paragraph to me is the one where it was claimed to the FCA that the concept of “responsibility” is some kind of ambiguous, philosophical concept, ignoring its own Responsibilities Map and the principles it (somehow) expects the UK finance industry to follow.
And where exactly did this come from? A footnote to the report reveals it came from the submission to the Investigation made by erstwhile head of the FCA, current head of the Bank of England, Andrew Bailey. It came from the top.
It appears to be lost on FCA senior management that responsibility and accountability is what they pay you the big bucks for. For many people it is what they pay you minimum wage for (ask any carer).
The FCA’s 2018 intervention into LCF was delayed by fears of being met with a hail of bullets
The FCA’s belated intervention in late 2018, which resulted in LCF being closed to new investment and immediately collapsing, only happened by chance, as a result of an unrelated search on an external database while looking for something else, which turned up a report which identified significant concerns about LCF. The FCA staff member who stumbled upon the document stated “if the document didn’t mention LCF, it’s entirely possible that nobody would have looked at it”.
The report was circulated by the FCA’s Intelligence Team, ultimately resulting to an unannounced site visit in late 2018. [C13 7.12f]
The site visit was initially due to take place on 21-22 November, but was delayed for three weeks because the FCA team responsible felt there was a risk of being met with armed resistance, and stated they would not proceed without police support. The local police force refused to attend as they concluded the risk of LCF meeting FCA bureaucrats with a volley of gunfire was insignificant. Consequently the site visit eventually took place on 10 December. An FCA team member described the delay as “frustrating”. [C13 7.12f]
An FCA team making an unannounced site visit to a Ponzi scheme, yesterday.
The FCA failed to consider taking action to freeze the accounts of LCF, and companies and individuals connected to it, prior to its December 2018 site visit. [C2 3.23e]
Conclusion
Dame Gloster makes a number of sensible recommendations as to how the FCA should reduce the chance of similar scandals happening in the future, and limit the damage when it does. These include better training for FCA call handlers, more effort to consider the whole of a regulated firm’s business when supervising it, more effort by senior management to identify emerging risks, etc etc.
What Dame Gloster does not address, most likely due to limitations placed on her by the Government which commissioned the report, is how we can expect the FCA to follow such recommendations.
When you consider:
the lamely defensive response of the FCA to the Investigation, which suggests that despite a change in leadership, the FCA has been more concerned about loss of face than using the Investigation to identify ways in which it can do better
the repeated and systematic way in which the FCA contrived reasons to file reports and screaming red flags about LCF in the circular filing cabinet under the desk
an environment where members of the Supervision division receive no training in financial crime, and where FCA call centre staff were so poorly coached that they actively endorsed LCF to potential investors
…we have a clear picture of an organisation that is so infested by the cultural attitude of “if it’s unregulated it’s not our problem” that I fail to see how anyone can be confident the FCA will follow the Gloster recommendations, no matter how many mea culpas the FCA and Bailey give.
If the Government had replaced Andrew Bailey with an outsider with a reputation for a pro-active and activist approach, we might have grounds for optimism that change could come from there. But they went with a lifelong mandarin in Nikhil Rathi, so we’ll have to hope he has hidden depths.
Concept Capital offers an unregulated investment in pre-fab “static homes” paying a “guaranteed” 10% per year.
Investors invest their money to Concept Capital in units of £39,999 (although the website suggests that the minimum investment is £20,000), which is used to buy a static home to be rented to low-income government-supported tenants. Concept Capital “guarantees” to pay the investor 10% per year. Investors’ money is tied up for two years, after which Concept Capital undertakes to buy the static home back from them.
Concept Capital is an FCA-regulated firm, being an appointed representative of What Credit Limited. Its investment opportunity is however unregulated; What Credit (and by extension Concept) is only authorised to offer credit broking and debt counselling and not to run investment schemes.
This is notwithstanding Concept Capital’s claim on its website to be regulated.
Is this a regulated product? Yes. The unit(s) we provide are regulated by the National Caravan Committee Approval
As an investment scheme Concept Capital is unregulated. The National Caravan Committee does not regulate investment schemes.
The investment is currently being promoted on Facebook by unregulated introducers.
Third party promotion for Concept Capital advertised on Facebook.
Who are Concept Capital?
Concept Capital Group Ltd is 100% owned by sole director Ian Elliott.
Concept Capital owner Ian Elliott
According to his LinkedIn profile, prior to founding Concept Capital, Elliot was a materials manager at a builder’s merchant.
Concept Capital Group Ltd was incorporated in October 2019 and due to its young age is yet to file accounts.
Concept Capital claims the investment has a “6 Year proven track record”, based on a “trial period” run between Social Park Housing (who manages the homes) and Knight Mobile Homes (who manufactures them). The reality is that as an investment opportunity, Concept Capital did not exist before October 2019 at the earliest (when its company and website were registered).
How safe is Concept Capital?
Concept Capital claims to offer “guaranteed return of 10% per annum”, “guaranteed buyback” and “an opportunity to invest ethically and with peace of mind”.
In reality, as with any investment in an unregulated individual company, Concept Capital is an inherently high risk investment with a risk of up to 100% loss.
The guarantee to buy investors’ static homes back is dependent on Concept Capital having the money to do so. Otherwise investors will be trying to sell park homes on the open market. In which case, given that they aren’t going to be offering a 10% per year return, they should expect a significant loss.
The investment literature states that investors will own individual static homes with chassis numbers, but how this squares with the minimum investment of £20,000 being lower than the static home unit cost of £39,999 is not clear. [Update 14.01.21: Concept Capital have told me that for investments of £20,000, Concept Capital bought the other half of the static home. This option is no longer available for new investment.]
Bearing this in mind, should Concept Capital fail to make enough money to pay investors 10% per year on top of their own costs, there is an inherent risk that they will default on their “guarantee” to return the investor’s money in return for the static home.
The worst case scenario is that Concept Capital cannot even supply a static home to the investor and the investor loses up to 100% of their money.
If investors plan to rely on Concept Capital’s “guarantees”, it is essential that they hire professional due diligence specialists (working for themselves, not Concept) to confirm that in the event of a default, the assets of Concept Capital would be valuable and liquid enough to compensate all investors. Investors should not simply rely on what Concept tells them about their assets.
Concept Capital claim to offer a “Diverse Portfolio” on their website on the basis that investors can “Work with our business development team and grow your portfolio holdings”. Investing more money in a single unregulated company, as Concept Capital suggest here, is the exact opposite of diversification.
Regulatory risk
[Update 14.01.21: This section has been amended after contact from Concept Capital – see below.]
My original version of this review flagged the risk that the Financial Conduct Authority deems this to be an unauthorised collective investment, given that if an individual investor’s static home does not pay sufficient returns to pay the investor 10% per year, Concept Capital’s “guarantee” requires it to pay the investor from other resources.
Concept Capital denied they are running a collective investment scheme and told me that the FCA contacted them in November 2020 and, after Concept Capital answered their queries, ended their investigation without taking further action.
Regardless of whether Concept Capital legally qualifies as a collective investment scheme or not, if the FCA has investigated and closed its file, the risk of regulatory action appears to be moot. The FCA has been contacted for comment.
Note that regardless of the FCA apparently giving Concept Capital the green light to continue operating its investment scheme, all the other risks identified in this article still apply.
Should I invest in Concept Capital?
This blog does not give financial advice. The following are statements of publicly available facts or widely accepted investment principles, not a personalised recommendation. Investors should consult a regulated independent financial adviser if they are in any doubt.
As with any unregulated investment, this investment is only suitable for sophisticated and/or high net worth investors who have a substantial existing portfolio and are prepared to risk 100% loss of their money.
Any investment paying 10% per year is inherently extremely high risk. As an individual, illiquid security with a risk of total and permanent loss, buying a static home from Concept Capital is much higher risk than a mainstream diversified stockmarket fund.
Before investing investors should ask themselves:
How would I feel if the investment defaulted and I lost 100% of my money?
Do I have a sufficiently large portfolio that the loss of 100% of my investment would not damage me financially?
Have I conducted due diligence to ensure the asset-backed security can be relied on?
If you are looking for a “guaranteed” investment, you should not invest in unregulated investment schemes with an inherent risk of up to 100% loss.
Today marks the third anniversary of Bond Review’s first ever article, our review of London Capital & Finance, which went on to collapse owing £240m to investors.
So far Bond Review’s three years have seen:
114 reviews of high-risk, mostly unregulated investments promoted to the public
380 total articles keeping you up to date with news, developments and occasional commentary on the unregulated investment world
13 legal threats (not counting duplicate threats from the same scheme)
As ever, thank you to those who have donated already. The knowledge that somebody values what I’m doing is as important than the money towards the hosting costs.
Highlights of 2020
In the holiday tradition of reminiscing on the year just gone (if we really must), here’s a roundup of some of the bigger articles of 2020:
The UK arm of Ponzi scheme Imperial Investments, Investments Imperial Limited, has been issued with a strike-off notice by Companies House after failing to file up to date details of its ownership.
If the strike-off goes ahead, in two months Investments Imperial Limited will be dissolved and its assets will become property of the UK Government. It’s unlikely that the UK shell company of a small-time Ponzi scheme has any assets to speak of, but it won’t help them keep banking channels open.
The latest update from the Blackmore Bond administrators reveals that investors may be facing total or near-total losses.
Potential gross recoveries have been revised from £5 million down to less than £1 million, due to the difficulty of selling properties / building sites as a forced seller during the pandemic, and the fact that Blackmore borrowed money from expensive short-term lenders whose security over the properties outranks the bondholders.
With the administrators’ costs and legal costs already standing at over £1 million, which also stand ahead of Blackmore’s ordinary investors in the queue, this means bondholders are facing total losses.
The prospect of total losses stands in stark contrast to Blackmore‘s marketing material which claimed the bonds provided “simple, fixed-rate returns with income certainty” and were “fully insured against insolvency through our comprehensive Capital Protection Scheme”.
This “Capital Protection Scheme” consisted of insurance policies arranged through Ion and Northern Surety Company (also referred to as Northernlights Surety). Whether these will actually provide any recompense to investors is unclear. The administrators note that they are not responsible for claims on these, as this is in the hands of Blackmore’s Security Trustee, Oak Fund Services (Guernsey).
Blackmore raised £46 million via its unregulated bonds which were sold to the public by the same marketing company as London Capital and Finance.
Fluid Trust plc has been issued with a strike-off notice by Companies House after failing to file up to date annual accounts since September 2020.
Unless the company files its accounts, or a creditor or other third party successfully objects to the striking-off, Fluid Trust plc will be removed from the register and all its assets will become legally property of the Government (though this can be reversed).
Fluid Trust, part of the stable of Northern Provident Financial, raised money from investors in IFISA bonds paying 6% per year. How much it has raised is unknown due to its failure to file accounts, but the company has a total of 63 reviews on Trustpilot, universally from investors singing its praises (despite the company being too new to have any real track record).
Fluid Trust took the time to reply to all of its Trustpilot reviews, which throws its failure to keep up with its legal duties under the Companies Act into starker relief.
The company has shuttered its website (replacing it with a “down for maintenance” notice), citing the restrictions on mini-bond marketing introduced after the collapse of London Capital and Finance. Fluid also abandoned its Twitter account in October 2019.
Minerva Lending plc has been in default of series C1 and series C2 loans owed to its investors since July 2020, according to reports filed with the Irish Stock Exchange. The bonds were repayable this year.
As stated in the prior announcement, the cause of the delay is that the underlying borrowers have failed to repay loans due for repayment on 30 June 2020.
A partial repayment to investors was expected in October following the repayment of £292,000 to Minerva. Minerva states that it will pursue legal action against the underlying borrowers if payment is not received by December.
In July 2020 the company also delayed interest payments to investors citing “a fraud which involved the re-direction of funds to an erroneous bank account”. A subsequent August announcement stated that matters had been resolved and all outstanding interest payments were to be settled.
Minerva Lending plc has been overdue with its December 2019 annual accounts since September 2020. (Companies House indicates it didn’t apply for the three month extension granted automatically to all companies due to the pandemic.)
At the time, Minerva’s website claimed “high fixed returns with the security of asset-backing” and “No investor has ever lost a penny investing in Minerva bonds”.
The company’s website was pulled and replaced with an “under construction” notice at some point before July 2019 (Internet Archive). In July 2019 the website consisted of a notice saying “This website is currently being updated and will be back on line soon” plus basic contact details. At some point since that “back on line soon” notice was replaced with “We’re building something new”.
Whatever Minerva are building, having no real website for a year and a half and failing to file legally-required annual accounts on time doesn’t inspire confidence in it.
