The saga of Privilege Wealth has all but come to an end. In February the administrators of the collapsed minibond scheme filed their final report, before handing the last of the clean-up to the Official Receiver.

Readers and investors will probably be unsurprised that the outcome was 100% losses for investors, despite Privilege Wealth’s claims that its bonds were “low-risk” and “insured”.

It is now clear there will not be a dividend to unsecured creditors.

The administrators were pursuing recoveries from

• a book of pay-day loans to the Sioux Tribe of Native Americans
• an insurance policy taken out in the small island nation of Bermuda
• an £80k default libel judgement against David Marchant of Offshore Alert, who described the scheme as a fraud before it collapsed. The administrators listed the libel damages as a possible asset despite themselves describing Privilege as a “possible Ponzi scheme”.

Evidently these have come to nothing.

Of the £42 million odd put in by investors, a grand total of around £90,000 was recovered. £27,000 went to the administrators (who took a percentage of all funds recovered, which mostly consisted of cash recovered from escrow) and the rest mostly went on legal fees.

If any readers are wondering why I repeatedly warn investors that “asset-backed investment” actually means up to 100% losses if things go south (in the absence of genuine, professional-standard due diligence establishing that the security will have value), this is why.

Mini-minibond scheme also finally folds

A small offshoot, Munio Capital, which raised money from minibonds paying 9.8% per year and took in £813,000 according to its accounts, is also no more after being struck off the Companies House register, presumably after failing to file a confirmation statement.

Back in 2018, after Privilege Wealth collapsed, director Gary Williamson attempted to voluntarily strike the company off the register, which was thwarted by an objection, possibly from a creditor.

The company has now been put out of its misery by a compulsory strike-off, most likely due to the company’s failure to file details of its ownership since July 2018 (a confirmation statement is required at least once annually, and failing to do so is a criminal offence).

The assets of Munio Capital now belong to the UK Government, but as the administrators of Privilege Wealth have confirmed that there is no prospect of a dividend to unsecured creditors, Munio Capital is also near-certain to be worthless.

The administrators of “possible Ponzi scheme” Privilege Wealth have filed their latest six-monthly progress report earlier this month.

Since the last update, no further recoveries have been made to date and the total recovered from the scheme remains just under £91,000. Costs of the administration rose to £83,000, with the increase in the period consisting almost entirely of a further £39,000 in legal fees spent on attempting to gain control of Privilege’s assets. The administrators have not received any further fees since the last update, as their fees are fixed at 30% of recoveries.

The most eye-catching item in the progress report is that the administrators now have a figure for the potential value of the Rosebud lending loan book, a portfolio of payday loans to members of the Sioux Indian tribe of South Dakota.

The administrators believe the book’s value is between 1 and 4% of the value that Privilege paid for it of c. $25 million – so in other words, between $250,000 and $1 million. Minus any further fees involved in selling the book and, from the perspective of Privilege investors, minus the administrators’ 30% cut of anything left after that.

Prospect of significant recoveries for the investors who are owed an estimated total of £45 million therefore appear to remain highly uncertain.

The administrators have engaged specialist brokers in the US to sell the Rosebud book but no sale has been concluded at this time.

The position regarding Helix’s claims over Privilege’s assets remains under review.

A number of other assets are listed by the administrators but are not expected to result in substantial recoveries.

In regard to the insurance policy mentioned in the last update, the position remains under review. The administrators believe Privilege Wealth plc is a beneficiary of the insurance policy but have been refused details of the claim made on this policy by ex-Privilege director Peter Stokes, on the grounds that they are not a party to the claim.

The administrators continue to leave open the question of whether they should attempt to enforce the judgment granted to Privilege against OffshoreWealth’s David Marchant for calling Privilege a fraud, having themselves described Privilege as “possibly operated as a Ponzi scheme” when they were appointed.

The directors of Munio Capital, which in 2016 offered five-year unregulated bonds paying 9.8% per annum, have applied to strike the company off the register.

Munio is six months overdue with its accounts and recently survived a compulsory strike-off in July 2018. That strike-off attempt was launched by Companies House due to the company’s failure to file a confirmation statement; this latest strike-off has been requested by the directors themselves, specifically director and joint-owner Gary Williamson.

Munio Capital’s website is down and its phone number goes straight to an answering machine.

The stated aim of the company was to provide liquidity to a payday lender in the US. Investors have alleged that Munio invested investors’ money in Privilege Wealth, which is in administration.

How much was invested in Munio Capital is not known as the company has failed to file accounts since its bond raise.

If no objection is received to the striking off, the company will be dissolved and all Munio Capital’s assets, if any, will become property of the UK Government (though creditors could apply to have this reversed). UK law requires that all Munio’s creditors must be notified of the striking off application.

The strike-off application suggests the directors believe Munio Capital – and by extension its bonds – to be worthless.

How do I get my money back from Munio Capital?

Munio Capital was promoted to at least some investors by regulated financial advisors. If you were advised to invest by an FCA-regulated adviser, you may be able to recover your money by making a formal complaint that the bonds (which were suitable only for sophisticated and high net worth investors investing a small part of their assets) were unsuitable.

If the adviser refuses to provide compensation, the complaint can be taken to the Financial Ombudsman, which can order compensation of up to £150,000 per person. If the adviser is unable to pay, you would be covered by the Financial Services Compensation Scheme up to £50,000 per person.

Investors should avoid Claims Management Companies (CMCs) as they are unnecessary (the FOS and FSCS process is slow but straightforward), often have a lower success rate than direct complaints, and charge eye-watering fees (often 30% of monies recovered).

If you invested in Munio Capital, you should be on your guard against anyone contacting you and telling you that they can recover your money. It is highly likely that you will be targeted by fraud recovery fraud. If anyone asks you to pay “legal fees” or “liquidation fees” to release your money it is almost certainly a scam.

The administrators of the collapsed unregulated bond scheme Privilege Wealth have filed the first of their six-monthly updates.

The full administrator’s report can be viewed on Companies House.

Readers will recall that one of Privilege’s main underlying investments was the loan book of a company called Rosebud which extended payday loans to the Sioux Indian Tribe of South Dakota. Since the administrators’ initial report, the administrators have succeeded in recovering $87,000 from a Rosebud escrow account (£63,000).

Some further small sums recovered from various parties bring the total funds recovered from Privilege to £91,000. The administrators are due 30% of all recoveries, and this plus legal and other costs take the net amount recovered to £51,000. With Privilege’s Wealth’s debts identified as £4.2 million, clearly this will not go far among the creditors.

The administrators are still trying to gain control of the Rosebud loan book itself. However, while the administrators believe that Privilege has obtained the legal right to the loan book, the data as to who Rosebud loaned money to is in the hands of another creditor, Oliphant Group, whom the administrators believe may be collecting money from the Sioux Indians.

Readers will also recall that another company, Helix, is seeking to enforce its own claims against Privilege Wealth’s assets. At the time of the initial proposals to creditors, Helix and the Privilege Wealth administrators had agreed in principle to co-operate, but the most recent update confirms that “a satisfactory agreement has not been reached to date”. A definitive and satisfactory response has also not yet been provided over the current position regarding Helix enforcing their alleged security.

According to the administrators, it appears that Helix is controlled and/or directed by one of Privilege’s former directors, Peter Stokes, who resigned as a Privilege director in May 2017.

In addition to Rosebud, Privilege made further investments into distressed credit card and bank debt through its US subsidiary, Privilege Direct Corp. Helix is also claiming security over this asset, and has already commenced legal proceedings in Florida.

The prospect of any significant recoveries for Privilege Investors would appear to rest on whether

• a) Privilege can gain control of the Rosebud and Privilege Direct loan books and
• b) whether the loan books, which consist of payday loan and “distressed” (i.e. sub-prime) debt, are worth much of anything in the first place.

An insurance claim has also been made by Peter Stokes on behalf of both Helix and Privilege in respect of an insurance policy against “capital shortfall” from an insurer, Independent Risk Solutions Limited, in the small Atlantic island of Bermuda. The administrators appear uncertain as to whether this insurance policy is likely to result in any funds for investors, noting only that further investigation is required.

The administrators have not repeated their finding in their original report that Privilege was “possibly operated as a Ponzi scheme” (on the basis that Privilege only invested $9m out of $40m investors’ money into actual assets). Which is to be expected. The administrators’ job is to maximise recoveries for creditors, not to solve the philosophical angels/pin question of how little an investment scheme can invest of its investors’ money before it crosses the line from poorly-run but perfectly legal failed investment scheme to illegal fraud.

The administrators do reveal that they have submitted a report on the conduct of Privilege’s directors to the Department for Business, Energy & Industrial Strategy, but this report is confidential and the contents are undisclosed.

One notable potential source of recoveries that the administrators have identified is the recovery of costs from Privilege Wealth’s successful libel action against David Marchant, editor of Offshore Alert, who publicly denounced Privilege as a fraud shortly before it collapsed.

Readers will recall that Marchant lost the case by default, by not turning up in the UK to defend himself, instead relying on the fact that a UK libel judgment couldn’t be enforced against him in the US. The courts awarded legal costs of £80,000 against David Marchant, which he remains due to pay to Privilege, at least in the eyes of the administrators and the UK libel courts.

The administrators are keeping the matter “under review” and say they will revisit the question of whether they can enforce this debt once recognition proceedings are finalised.

So the Privilege administrators, who have already described the company they are managing as a “possible Ponzi scheme”, are apparently considering whether to chase David Marchant for a legal debt he owes because he accused Privilege of being a Ponzi scheme.

Presumably if the case had to be re-run in front of a US court, Privilege’s administrators would have to argue that Marchant libelled Privilege by describing it as a fraud whereas it was really only a possible fraud.

Privilege’s administrators have a statutory duty to claim any money they can legally get their hands on for the benefit of Privilege’s stricken investors. So if it was feasible to collect 80 grand from Marchant, the administrators are duty-bound to give it a go. But I rather suspect that this is another receivable that will not come to anything.

The administrators will be due to file their next report in six months’ time.

The administrators of the collapsed Privilege Wealth investment scheme, which offered unregulated bonds paying 9.85% per year, have filed a Notice of Administrator’s Proposals with Companies House on 23 March.

A detailed breakdown of the reasons for the company’s collapse can be found in the full administrator’s report, but here is the executive summary: Privilege Wealth invested investors’ money in a Panamanian pay day loan company run by a man wanted by Interpol (who was later shot), as well as other pay day loan books run by Rosebud Lending, a Sioux Indian sovereign nation lender, and a company called The Oliphaunt Group. None of these investments paid a return.

With the lack of returns and running costs of $550,000 a month, described as “rental and payroll” (so presumably this does not include the 9.85% per annum that Privilege had promised to investors), collapse was inevitable.

What is left is a range of payday loan books held by Privilege Wealth after the failure of its subsidiaries and the companies it invested in. The value of these loan books is described by the administrators as uncertain.

Complicating any chance of recovery for individual investors is that Privilege Wealth’s second-biggest creditor, Helix Investment Management (which is owed £8.3 million, compared to £28.4 million owed to Privilege Wealth One LLP, believed to represent investors in Privilege Wealth’s bonds) is claiming security over some of Privilege Wealth’s assets, such as the Rosebud loan book.

If Helix’s claim is successful, these assets will not be available to compensate other creditors. The administrators continue to maintain a dialogue with Helix.

“Possibly operated as a Ponzi scheme”

A line that jumps out of the report is paragraph 2.46, which states

The Joint Administrators’ findings at this early stage would lead them to believe that the Privilege group was possibly operated as a Ponzi scheme, with only an estimated $9m invested into actual assets out of a total $40m of capital raised from investors. Investigations continue in this regard.

It’s quite remarkable that a High Court Judge, in the libel case of Privilege Wealth v David Marchant, could have described Privilege Wealth as “clearly not a fraud”. Yet only six weeks into the administration (barely enough time to make a cup of tea in forensic accountancy terms), the administrators feel sufficiently sure of their ground, when administering a collapsed investment formerly run by people known to be litigious, to describe it as a possible Ponzi scheme.

We can only hope that the next time an ultra-high-risk unregulated investment uses its investors’ money to sue an independent blogger, the High Court will be more cautious before endorsing the ultra-high-risk unregulated scheme. It is true that the judge had little option but to award the case to Privilege Wealth, because Marchant elected not to defend himself. There was, however, no need to go above and beyond this by endorsing the scheme as “clearly not a fraud”.

This libel case is commented on in passing by the administrators, who say

During the Autumn of 2016 articles were published on a financial reporting web site, Offshore Alert, suggesting that the whole operation was an investor scam and warning against investment into the business. The directors advise that this compounded the cash flow issues.

“This compounded the cash flow issues” translates as “We ran out of new investors’ money to pay off old ones with. Also, it’s this guy’s fault for telling everyone that we were running a Ponzi scheme, not ours for running a Ponzi scheme.”

The whereabouts of the other $31 million of capital raised is not known.

Since I last reported on Privilege Wealth’s administration, the administrators have recovered a total of £18,000, mainly from cash received when the Rosebud investment failed and Privilege Wealth took over Rosebud’s loan book. The administrators are working on a percentage basis, with 30% of all recoveries to be paid to the administrators.

Whether there will be sufficient recoveries to repay any significant amount of the £28 million owed to Privilege Wealth investors looks highly uncertain – whether or not Helix Investment Management succeeds in claiming some of Privilege’s assets for itself.

Privilege Wealth offered unregulated corporate loan note investments paying 9.85% per annum for a term of three or five years (based on an archived version of privilegewealthlp.com from March 2016). It described these as “low-risk, insured notes”. Investors’ money was to be used to fund payday loans in the United States.

Privilege Wealth PLC has now collapsed and entered administration, with Stephen Katz of David Rubin & Partners appointed as administrator. A statement of affairs was filed with Companies House on 26 February 2018.

According to the Statement of Affairs, Privilege Wealth PLC owes £42 million to various unsecured creditors, of which by far the largest amount, £28.4 million, is owed to Privilege Wealth One LLP, which is believed to represent investors who invested in its loan notes.

To meet these claims, Privilege Wealth PLC has £2,205 in the bank and a £2,353 VAT refund. All its other assets are listed by the administrator as of uncertain value. Under “Estimated to Realise” the administrator lists the total estimated assets as £4,558.

While some of its assets with “Uncertain” value, which include “Shares & Investments” (book value £9.5 million, actual value Uncertain) “Promissory Notes Receivable” (book value £16.3 million, actual value Uncertain) and “Promissory Notes Interest Payable” (book value £17.3 million, actual value Uncertain) may yet return some money, investors would be wise to manage their expectations.

Unless significant amounts can be realised from these assets of Uncertain value, the cash in the company will first be used to pay the administrator’s fees (the administrator always stands in the queue) and investors are at risk of 100% loss.

Who were Privilege Wealth?

The statement of affairs shows that Privilege Wealth plc was owned 20% by Bowline Private Fund in the Cayman Islands, 40% by Mark Munnelly (European Operations Director according to privilegewealthlp.com), 30% by Martin Sampson (Director) and 10% by Tomasz Pawelek (Director). Who controls Bowline Private Fund is not known.

Banned director Brett Jolly (who was banned from acting as a director for his conduct while acting for Anglo-Capital Partners Limited, a collapsed carbon credit scam) was also a Limited Partner of the Privilege Wealth One Limited Partnership. In a “letter to the editor” to Offshore Alert, he vehemently denies any wrongdoing, and says that while he was “very much involved with them since early on in their evolution”, his role was limited to “introductions to commissioned sales people” and that he was not an “owner” of Privilege Wealth.

Also part of the organisation was Christopher Burton, who ran a call centre for Privilege Wealth in Panama. In April 2017, Burton was shot three times in an assassination attempt. After recovering from his injuries, he awaits extradition to Spain for his role in a boiler room scam in Marbella.

“Low-risk” “insured” notes?

Privilege Wealth claimed on its website “Re-insurance of 95% of all utilised capital by “A Rated” insurers and “95% of Capital insured against loss”.

On http://privilegewealthlp.com/insurance.html, it provided further detail:

“100% of the Capital Value of each Loan Note (with a 5% deductible) is insured against “Default” and “Wrongful Act” by the General Partner”, and includes the following types of cover:”

There then follows a long list of types of cover, but the one of most interest to investors is

• Default by the financial institution, the General Partner (and Partnership) in terms of the non-payment of 100% of the principal Capital Value of each Loan Note as loaned by any Loan Note Holder or Limited Partner to the General Partner (and Partnership) as agreed and signed in any Loan Note transaction between the General Partner and the respective Limited Partner.

However, this page then finishes off

* This is a broad terms description of the insurance policy for illustrative purposes only. The only contractual reference to insurance in contained in the policy itself.

Whether investors will indeed receive 95% of their capital back looks extremely unlikely at this stage.

This illustrates that when an unregulated bond is described as being “insured”, investors cannot assume that this will give them any protection against losses unless they have obtained watertight professional due diligence on the insurance contract, and on the insurer providing the insurance, and are therefore confident that the insurance will in fact pay out in the event of capital loss.

Legal case

Privilege Wealth successfully sued David Marchant of the well-known scam awareness blog OffshoreAlert.com for £80,000 after Marchant described Privilege Wealth as a fraud. The judge described this claim as “baseless” and stated that Privilege was “clearly not a fraud”.

Privilege had only claimed damages of £50,000, but the judge awarded £80,000 against Marchant, because Marchant had signalled his intention to ignore the judgment and continue publishing the material.

Less than a year after this judgment, Privilege Wealth has collapsed.

So much for “truth is an absolute defence”?

Not really. Firstly, Marchant didn’t enter any defence, relying on the fact that a UK libel judgment couldn’t be enforced against him in the United States. Secondly, it is still not established that Privilege was a fraud. (The long list of allegations made by Brett Jolly against the scheme to Offshore Alert doesn’t look good, but they are as yet unproven.) Running a failed investment is not fraud.

I don’t say this to excuse Privilege; I say this because time and again we see people justifying investment in ultra-high-risk investments with the rationale “if it wasn’t legit, the police or the regulators would shut it down”. If you invest in ultra-high-risk unregulated investments, neither the police, the regulators nor anyone else are going to save you from losing your money.

According to the administrator’s statement, the lawyers who won that libel case for Privilege, Lewis Silkin LLP, are still owed £45,000. They must now join Privilege’s investors at the back of the queue.