Category: failbonds

Takeaways from the Gloster report into the collapse of London Capital and Finance

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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.

Change needs to come from the top as part of a full overhaul of the UK’s 80-years-out-of-date securities laws, and it can’t come soon enough.

Blackmore Bond investors facing total losses

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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.

Krono Partners update: management team member charged with securities fraud

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We last checked in with the Krono Partners administration a year ago. Krono Partners collapsed in March 2018 after raising money from investors supposedly for investment in distressed real estate and micro loans.

When Krono collapsed, almost all of the remaining money was dependent on a “Company Y” loan platform, which supposedly was going to raise funds for other projects and pay commission to Krono, in return for the money invested in it from Krono investors.

I missed the administrators’ April update due to being somewhat pre-occupied.

The big news since last October is that a member of Krono’s “management team” has been extradited to the US and charged with fraud. Ulrik Debo is described by the administrators as “playing a significant part of the Company” despite not appearing on Krono’s list of directors registered with Companies House.

Debo is also a director of Company Y.

The U.S. Securities and Exchange Commission alleges:

As alleged, from at least 2013 through December 2019, [Kenneth] CIAPALA and his firm, BLACKLIGHT, as well as others, conspired to defraud the investing public by orchestrating and facilitating the manipulation of multiple publicly traded stocks, commonly referred to as “pump and dump” schemes. The vast majority of the stocks that CIAPALA, BLACKLIGHT, DEBO, and their co-conspirators sought to manipulate were “penny” or “microcap” stocks that traded in the United States on the over-the-counter (“OTC”) market. In executing these pump and dump schemes, CIAPALA, BLACKLIGHT, DEBO, and their co-conspirators (i) secretly amassed beneficial ownership of all, or substantially all, of the stock of certain publicly traded companies; (ii) began manipulating the price and demand for these stocks through, among other means, the release of materially false information to the investing public and manipulative trading practices, thereby causing the share price of these stocks to become artificially inflated; and (iii) sold out of their secretly-amassed positions at artificially inflated values at the expense of the investing public.

Krono Partners appears not to be mentioned in the SEC’s case.

It is notable that if the SEC’s allegations are true, the pump and dump scheme of which Debo is alleged to have been a part started in 2013.

Krono Partners was incorporated in 2013. The administrators have previously revealed that the UK’s Financial Conduct Authority investigated Krono in 2014 and took no further action.

[Krono Partners] was contacted by the FCA in 2014 which undertook a review of the Company and its products. The Company instructed Peters and Peters, a firm of solicitors, to help with the FCA review. After 4 months, the FCA closed its case and confirmed the Company could continue its business.

As for Company Y, there is still no sign of any actual returns.

Previously, the administrators have been able to provide detailed updates on the position in relation to these projects but the administrators have been unable to set up conference calls which included Ulrik Debo since his arrest in December 2019 and whilst the administrators continue to press the Director for updates both direct and via solicitors, no substantial detail has been provided.

As a general point, the Covid-19 pandemic [blah blah blah] the Director is stating that although potential investors have not completely withdrawn their interest in the various projects, there is little promotional activity currently being undertaken.

The administrators are at present committed to proceeding with the administration in order to support any commissions that are forthcoming from the debt funding platform.

Total fees currently incurred by the administrators (Smith & Williamson, also currently raking over London Capital & Finance and Blackmore Bonds) stand at £190,000, of which £82,000 has been collected. A further £51,000 has been incurred in other costs. £233,000 has been recovered so far.

“I’ve spoken to God and pulled my eyes out” – FSCS relying on gibberish transcripts, LCF investors say

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The FSCS has begun to rule on whether investors in LCF are eligible for compensation. As of August, it had issued 1,295 decisions, equivalent to 11% of the number of LCF investors, and paid out £20 million, equivalent to 8% of the total invested in LCF.

A back-of-the-napkin calculation would suggest that roughly three out of every four claimants are getting compensation, but that could be wildly inaccurate if, for example, the cases reviewed by the FSCS so far involve larger investments than the average.

The FSCS previously said in January 2020 it would not be able to compensate the majority of investors and in May 2020 estimated that about one pound in every five invested in LCF is eligible for compensation, based on its earmarking £44 million to pay claims. Unless a major volte-face is in progress, one can only assume that the investors with weak or non-existent cases for compensation aren’t even putting in claims.

LCF investors say that in those cases where the FSCS has turned down compensation, it is doing so on the basis of transcripts of phone calls with LCF and its marketing agent Surge that are wildly inaccurate.

FSCS have incomplete evidence resulting in arbitrary decisions. Compensation is being paid to savers who had no contact other than the website. Transcripts of calls from FSCS say: “I’ve spoken to God, ISiS & Frankie Valli during my investment period and pulled my eyes out”!

FSCS initially had calls “translated” using a computer generated programme which resulted in rubbish being produced. It is this data that they are listening to in order to base decisions. Guesswork – not science.

FSCS stopped issuing Subject Access Request info to investors as it caused more questions than answers. SARs have exposed the data irregularities leading to inconsistent awards of compensation.

@LCFBondholders on Twitter

In a more recent post, @LCFBondholders tweeted:

NO for a saver last week. Yesterday – overturn after challenge. It seems transcripts are used before calls are heard in which ISA = nicer, isis, Alistair, icer, my eyes are, oyster, older, ice is tax free etc

@LCFBondholders on Twitter

When the FSCS announced that it would compensate LCF investors for receiving advice from a company which was not an advisory firm, was not authorised to give financial advice, and employed no qualified financial advisers, it was always going to result in absurdities.

The FSCS’ 44 million pound fudge has so far managed to satisfy virtually nobody (other than the bondholders who draw a winning ticket); neither LCF bondholders as a whole, nor those who pay FSCS levies as part of the cost of running a financial business in the UK.

A judicial review is to be heard over the FSCS’ stance that LCF’s issuing of bonds was not a regulated activity. If successful it would potentially widen the number of LCF investors eligible for compensation to anyone who invested after LCF became regulated.

Dolphin Trust is kaputt, FCA / FOS / FSCS confirm in joint statement

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A joint announcement by the FCA, FOS and FSCS has confirmed that Dolphin Trust (which recently renamed itself to Generic, I mean German Property Group) has entered preliminary bankruptcy proceedings in Germany.

The F-pack encourages investors who invested in Dolphin via an FCA-regulated SIPP or financial adviser to make formal complaints.

Dolphin’s bankruptcy comes as little surprise. Repayment problems started in late 2018, and an administrator was appointed as problems mounted, who said in August 2020 that Dolphin’s accounts were a “total mess”.

Dolphin Trust bonds were extensively flogged to UK investors via a cast of dubious characters including unregulated introducers and pension liberation fraud schemes such as London Quantum. Dolphin Trust paid out up to 20% of investor funds as commission, according to the BBC.

The unregulated investments were also sold to investors in Ireland and South Korea, where the scandal claimed the head of a prominent bank CEO.

How do I get my money back from Dolphin Trust / German Property Group?

As the FCA has indicated, if you were advised to invest in Dolphin by an FCA-regulated company, or invested via an FCA-regulated pension provider, you may be able to recover your money by making a formal complaint to them.

If the company refuses to provide compensation, the complaint can be taken to the Financial Ombudsman, which can order compensation up to a defined limit. If the company is unable to pay, you would be covered by the Financial Services Compensation Scheme up to £85,000 per person.

Investors should avoid Claims Management Companies (CMCs) as they are unnecessary, often have a lower success rate than direct complaints, and charge eye-watering fees. The FOS and FSCS process is slow but straightforward.

Otherwise the standard procedure is to write off the investment and treat any recovery as a bonus.

If anyone contacts you claiming they can get your money back from Dolphin / GPG (other than via the above channels), it is a scam.

Wellesley becomes latest mini-bond firm to fail

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Wellesley has become the latest minibond issuer to default on investors. Income payments were suspended last week and the company announced on Tuesday that it would attempt to persuade investors to approve a Company Voluntary Arrangement.

According to The Times, investors in property-backed minibonds are facing a write-off of 22% or more, while investors in non-property minibonds face total losses.

An early indication of problems at Wellesley Finance came in January 2020 when their auditors cast material doubt over whether the company could continue as a going concern.

I’ve been asked more than once why Wellesley was never reviewed here. The answer is that by the time Bond Review was launched in December 2017, the company had mostly cleaned up its act as far as its adverts were concerned, and (unlike the likes of London Capital and Finance) made it pretty clear that investors were investing in loans to a company and capital was at risk. I don’t write a review just to tell investors what the company has already told them.

Historic Wellesley advertising contained a number of familiar tropes that have since been identified as misleading by the regulator.

Wellesley advertising in 2016.

Regardless of the extent to which Wellesley investors can be blamed for investing in an inherently high-risk investment, the collapse of Wellesley is another blow to the concept of advertising high-risk unregulated and pseudo-regulated investment securities directly to ordinary retail investors.

Asset Life plc update: both underlying investments blank administrators

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The adinistrators of Asset Life plc, which collapsed in August 2019 owing £8 million to bond investors, have released their latest update.

Unfortunately there’s not much to report as both of the investments that constitute what is left of Asset Life plc have gone dark on the administrators. Prospects for recoveries from either still look bleak.

We have not identified a realisation strategy for the Company’s investments in Aprelskoe Limited and Lori Iron and Steel Limited that would result in a tangible return to the Company’s debenture holders. Aprelskoe’s two remaining UK-based directors resigned on 5 December 2019 and the company has not responded to any communication from the Joint Administrators. A new Moscow-based director, Mr Sergei Bezborodov, was appointed on 6 July 2020.

[…] Lori has not responded to any communication from the Joint Administrators.

Little is disclosed regarding either the “potential alternative avenues for recovery” being explored by the administrators and their lawyers, or in respect of the insurance policy that supposedly covered Series C bondholders.

In the six months to July 2020, £592 was recovered from a residual balance owed by Keystone Law, plus £7 in interest. Time costs incurred by the administrators over the same period amounted to £21,360.

13 people sued by LCF administrators in £178m lawsuit

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According to the Financial Times, 13 people are to be sued by the administrators of London Capital & Finance in an attempt to recover £178 million of investors’ money.

The not-so-unlucky 13 include:

Clockwise from top right: Simon Hume-Kendall, Andy Thomson, Spencer Golding and Elten Barker.
  • The Four Horsemen Of LCF, the four directors of London Capital and Finance or connected companies to whom LCF on-lent money, who were arrested by the Serious Fraud Office and shortly thereafter released without any charge: Simon-Hume Kendall, CEO Andy Thomson, Elten Barker and Spencer Golding.
  • Hume-Kendall’s wife Helen.
  • Paul Careless, CEO of Surge Group which received a total of £60 million in commission for promoting London Capital & Finance.
  • Former Tory Energy Minister Charles Hendry, who is one of five defendants accused of not doing enough to identify the fraud while serving on the board of LCF-linked companies.
  • The other six defendants have not been named by the FT.

The lawsuit alleges that LCF’s purpose was to defaud bondholders. According to the lawsuit,

nearly 60 per cent of all of the investors’ cash — about £136m — was channelled to its executives either directly or via loans to companies they controlled or were connected to.

Add the £60m paid to Surge, and you only have at most £1 in every £5 invested by investors going into assets which might pay them a return, according to the administrators.

Although there is not a long history in the UK of the perpetrators of collapsed unregulated investment schemes having to give the money back, one wonders how many directors of unregulated investment schemes that have recently collapsed, or are in the process of collapsing, might be sleeping a little less easy in their beds.

It remains to be seen, probably over the next few years at a minimum, a) whether the administrators are successful in making the allegations stick against the defendants (who universally either vigorously denied wrongdoing or did not make any comment) and b) whether, if so, they can recover any assets.

Dolphin Trust accounts in “total mess”, no money left, says administrator

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The administrator of Dolphin Trust (latterly known as German Property Group, and referred to here by its more well-known and less generic name) has revealed that the accounts are in a “total mess”. As reported by FT Adviser:

In a letter in August partner Tim Beyer wrote: “Please note that we have found a total mess over here. It will take at least to the end of September before the insolvency court will have issued court orders for all companies of the GPG group. 

“And due to the fact that the bookkeeping, the documentation and all other relevant information regarding assets, money, etc. are incomplete, not available in the first place or just a total mess, we probably need at least until the beginning of 2021 before we are in a position to talk about any concrete investment or assets.”

Beyer also revealed that the Dolphin companies have been emptied of funds.

“And all of this we have to do with nearly no money on the accounts of the companies of the GPG group,” he said.

Dolphin Trust / GPG and its personnel extensively raised funds in the UK via a combination of unregulated introducers, fraudulent pension liberation schemes, and Nicola “Superwoman” Horlick’s Money & Co platform, where it used the name “Project Seascape”.

An attempt to enter the Intelligent Finance ISA market, again via Horlick’s Money & Co, this time using the name “Grounds Investment plc”, resulted in an abrupt reverse ferret. All Grounds funds were returned to investors in August 2019, only a few months after the launch. By that point Dolphin’s problems were already out in the open, after the BBC reported on them in May 2019.

The UK’s Financial Services Compensation Scheme is now likely to be on the hook for any Dolphin investors who were missold their investments via FCA-regulated companies. The FSCS has indicated that it may assume that Dolphin investments as being worthless and take over any recoveries on behalf of investors.

Capital Bridge (aka Northbridge) in administration, up to £2.3 million investor losses, 40% commissions paid

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In October 2018 I reviewed The Capital Bridge’s IFISA bonds paying 9% per year. The Capital Bridge, whose full name was initially Capital Bridge Bondco 1 and then First Northbridge (it looks unlikely there’ll ever be a sequel) loaned investors’ money to Capital Bridging Finance Solutions Limited.

CBFS went into administration in April and The Capital Bridge inevitably followed it into administration in June. [Hat tip to reader Alex Wright who brought the collapse to my attention.]

The administrators of First Northbridge have now released their initial report. A total of £2.3 million was raised by First Northbridge. Prospects for any recovery are described as uncertain.

Capital Bridge’s ultra-high-risk unregulated bonds were promoted by Google Ads alongside FSCS-protected Cash ISAs.

In April 2019 Capital Bridge belatedly disclosed that up to 20% of investor’s money would be paid to introducers as commission.

The next time Capital Bridge’s name cropped up was when Bury FC’s unregulated car parking investment scheme collapsed (along with the footy club), along with other schemes run by its former owner.

Capital Bridging Finance Solutions loaned £2.3 million to Bury FC. Up to 40% of this was paid as yet more commission to unknown parties in exchange for arranging the loan.

Capital Bridge Bondco investors therefore join the long list of retail investors left counting their losses after the collapse of Bury FC.

Hundreds of people have lost money on student units they bought in blocks which have not been completed. Marcus Levine, a Leeds-based artist and investor in a Huddersfield scheme, said fellow investors include one terminally ill man, and another who invested the lump sum he received on early retirement. Another, Muhammad Rafiq, said he had invested his life savings of £30,000: “I have worked since I was 16, and I followed my parents’ advice to put my money into safe investments like property,” he said.

There was no mention of loaning to lower-league football clubs in The Capital Bridge’s brochure, which claimed that CBFS would “lend to hand-picked property developers in the UK” and “ensure that strict criteria are adhered to and only onward lend to borrowers who can satisfy these requirements”.