FSCS invites Secured Energy and Providence investors to submit claims over Independent Portfolio Managers

January 7, 2019 ~ Phoenix ~ 4 Comments

About a month ago the Financial Services Compensation Scheme declared Independent Portfolio Managers in default, shortly after its liquidation.

The FSCS is now inviting claims from investors in Secured Energy Bonds and Providence Bonds.

There are potentially 2,000 UK customers that may be affected by the failure of IPM but the value of potential claims is still unknown. Many customers invested into one of two failed mini bonds which IPM had approved. We are aware that many former customers of IPM have outstanding complaints with the firm / Financial Ombudsman Service (FOS) prior to it failing.

I am not 100% clear on whether this means the FSCS will cover investors’ losses in full. The Financial Ombudsman certainly instructed IPM to cover investors’ losses in full (an empty order as IPM didn’t have any money) but whether the FSCS will pay out on the same basis has not been confirmed for certain. The phrase “the value of potential claims is still unknown” seems to leave this deliberately ambiguous.

It will probably become clear when claims have been processed and the FSCS has disclosed how much they have paid out.

While it would be great if investors recovered their losses in full, I stand by my earlier opinion that this is an absurd position. The FSCS was never designed to cover losses in unregulated investments. And if the FSCS pays out over IPM’s misleading literature, effectively this means that any unregulated investment can be covered by the FSCS if they find or create an obscure outfit with FCA authorisation to approve the literature – something that any outfit that has secured FCA-authorised status can do.

As we’ve seen with the adviser phoenixing scandal and numerous other dodgy entities which were given FCA authorisation, the FCA will authorise literally anybody.

Where does this end?

Independent Portfolio Managers goes into liquidation

December 4, 2018December 3, 2018 ~ Phoenix ~ Leave a comment

Independent Portfolio Managers, the minibond promoter which was hit by a slew of Ombudsman complaints for its role in the collapse of Secured Energy Bonds and Providence Bonds, has gone into liquidation.

When I last reported on the company in late October I overlooked that a creditor had already petitioned to wind up the company. This petition was heard two weeks ago, and the winding up commenced on 14 November.

Interestingly, the creditor who brought the petition against Independent Portfolio Managers was the administrator of Secured Energy Bonds.

The latest progress report of the Secured Energy Bonds administrator (filed June 2018) does not mention a claim against Independent Portfolio Managers, though it does refer to “a number of potential claims [which] have been identified and are being progressed”. The administrator did not give any further details due to the “sensitive nature” of these claims.

We should now see whether the Secured Energy Bond investor action group is right and I am wrong, and whether the Financial Services Compensation Scheme will pay out to those investors who brought complaints against Independent Portfolio Managers over its misleading literature. Though I would not be surprised if it takes the FSCS many months to make a decision on investors’ claims.

At time of writing Independent Portfolio Managers does not appear on the FSCS’ list of companies in default.

A progress update should be due from the Secured Energy Bonds administrator should be due in the next few months which may shed more light on what exactly the debt which put IPM into liquidation related to.

In other Providence Bonds related news, Jersey adviser Chris Byrne has been sentenced to seven years in jail for misleading investors about the risk inherent in Providence Bonds and other acts of fraud.

The court eventually decided that Byrne’s helping the police with their inquiries in Guernsey did not merit any reduction in his sentence.

Providence Bonds’ Chris Byrne sings like canary, gets stay of sentencing

November 12, 2018November 10, 2018 ~ Phoenix ~ 1 Comment

Back in September Chris Byrne, an adviser for Jersey-based Lumiere Wealth, who advised unsophisticated investors to invest in the unregulated Providence Bonds opportunity, failing to disclose that Lumiere Wealth was in fact owned by Providence, was convicted of fraud.

Byrne was convicted not just for his misselling of Providence Bonds, but for other frauds including conning a near-blind woman into making a £1 million personal loan to him.

News from Jersey then went silent for a month and a half. Until last week, when the Jersey Post revealed that Byrne’s sentencing had been delayed at the last minute, on the grounds that Byrne had been helping the police of neighbouring Guernsey with their inquiries into a related investigation.

Commissioner John Saunders apologised to the investors in the Royal Court for the unexpected delay in sentencing but said the court had no choice given the revelations.

The information about the Guernsey informing was revealed during mitigating statements by Advocate Olaf Blakeley about four hours into the hearing.

Given that Byrne has already been judged guilty, and all that remains is to decide how long he will get banged up for, you would assume that the information he has provided to the Guernsey police is of some substance to merit a delay in his sentencing.

Victims of the Providence Bonds collapse attending in court were reported to have reacted with frustration at the delay.

Given that prison sentences for fraudsters in this part of the world tend to be less a punishment, more a brief compulsory networking opportunity, they probably shouldn’t lose too much sleep over what happens to Byrne from this point.

Independent Portfolio Managers gets last-minute reprieve, status of compensation payments still unknown

October 25, 2018October 24, 2018 ~ Phoenix ~ 1 Comment

Four days before it was due to be dissolved over its failure to file annual accounts with Companies House, Independent Portfolio Managers has had the strike-off action against it suspended.

The reason the action has been suspended is not known for certain, but the most likely reason is an objection by a creditor. If IPM had been dissolved, all its assets (if any) would have become property of the UK Government.

As I previously covered, in July and August IPM was ordered by the Financial Ombudsman to compensate three investors in Secured Energy Bonds for its failings in producing Secured Energy Bonds’ literature, and for giving a false impression that Secured Energy Bonds were more secure than other unregulated corporate loan notes.

Since August 1st, no further decisions have been published by the Ombudsman relating to Independent Portfolio Managers, despite the numerous similar cases that potentially exist against IPM for its role in Secured Energy Bonds and Providence Bonds. Three potential explanations for this are:

those were the only three investors who complained (I find this a bit unlikely given the number of investors who lost money in the aforementioned bonds, who have a well-organised action group)
other Financial Ombudsman cases against IPM are still in the queue or being reviewed
IPM has given up contesting cases against it at Ombudsman level. Financial Ombudsman cases are initially judged by an adjudicator, after which the losing party can request a review by an ombudsman. A case is only published publicly at ombudsman-decisions.org.uk if it goes to ombudsman level. If the decision of the adjudicator is accepted by the losing party, it remains unpublished.

The investor action group has declined to comment on whether any investors have actually received payouts from Independent Portfolio Managers. Ostensibly their spokesman did not wish to discuss the matter with an anonymous writer. I have to wonder if the fact that I have a downer on their prospects of eventually being compensated by the Financial Services Compensation Scheme may also have something to do with it.

Independent Portfolio Managers Limited remains overdue with its annual accounts and Companies House may resume the strike-off process at a later date. The directors are in theory also open to criminal charges for failing to comply with their legal duties.

Ombudsman orders Independent Portfolio Managers to compensate for unregulated bond collapses – will they pay up?

September 25, 2018September 22, 2018 ~ Phoenix ~ 1 Comment

Independent Portfolio Managers played a crucial role in the collapse of two unregulated bonds, Secured Energy Bonds and Providence Bonds.

Independent Portfolio Managers was an FCA-regulated company that issued financial promotions on behalf of Secured Energy and Providence. Without those FCA-regulated promotions, Secured Energy and Providence could not have been promoted to UK investors.

After those two bonds collapsed with total losses, investors in both Secured Energy and Providence made formal complaints to first Independent Portfolio Managers and then the Financial Ombudsman.

Just over a year and a quarter since it accepted the cases, The Financial Ombudsman has now began issuing rulings.

In three separate cases published in June and August, all three of them regarding IPM’s production of literature for Secured Energy Bonds, it has deemed that IPM was at fault for approving the promotion, and that it is responsible for investors’ losses, as they would not have invested if IPM’s promotion had not misled them into thinking that Secured Energy Bonds were “relatively safe”.

IPM must therefore repay their full investment (minus any interest received before Secured Energy’s collapse), plus interest.

Given that the FOS initially refused to even consider the cases on the basis that Secured Energy Bond investors were not customers of Independent Portfolio Managers, the FOS decisions represent an impressive victory for Secured Energy investors.

It seems nearly inevitable that the Ombudsman will also rule in favour of Providence Bond investors, assuming they also have complaints making their way through the system, as the circumstances were very similar.

However, I suspect that this may well turn out to be a Pyrrhic victory. I have previously noted that Independent Portfolio Managers’ last accounts (March 2016) state that it has net assets of £128k. Losses in Secured Energy and Providence total £15 million. Despite exercising its right to a six-month extension, Independent Portfolio Managers is now three months overdue with its accounts and there is an active proposal to strike off the company as a consequence.

Whether Independent Portfolio Managers has actually paid any of the Ombudsman’s awards against it is unknown.

The full ruling in the latest decision DRN0142726 is worth reading for anyone involved in the unregulated bond sector. In particular, the Ombudsman castigates IPM for portraying the “security features” of the bond, including the appointment of a Security Trustee and the fact that the bond was backed by SEB’s parent, CBD Energy in Australia, as if it made the bond less risky.

The invitation document did say there was a risk the security given to the Security Trustee and the guarantee given by CBD Energy might not be sufficient to repay the bondholders.

But the Invitation Document also gave the clear impression to potential investors that the Secured Energy Bond was a relatively safe investment in which investors had the protection of additional security measures making the investment less risky than other mini-bonds.

However CBD Energy was not, according to the information in the Invitation Document, in a strong enough financial position to be able to repay bondholders on demand if called to do so under the guarantee it gave.

And the Security did not have any mechanism to enable the Security Trustee to prevent SEB from disposing of secured property which was a fundamental flaw. It meant the Security Trustee could not prevent SEB from paying most of the money raised for investing in solar projects in the UK to its parent in Australia – who then went bust.

[…] The Security system was not fit for purpose. The SEB bonds were no more secure, or less risky, than other non-secured mini-bonds.

Other issuers and promoters of unregulated bonds who heavily feature “security features” such as asset-backing and Security Trustees in their literature should take note.

Jersey financial adviser jailed for recommending Providence

September 22, 2018September 21, 2018 ~ Phoenix ~ Leave a comment

Providence offered supposedly asset-backed bonds paying 8.25% per annum. The scheme collapsed in 2016 with total losses to investors.

Jersey financial adviser Christopher Paul Byrne was convicted of fraud last Friday for recommending that his clients invest in Providence funds.

Byrne told his clients that the funds were low-risk when they were anything but, and Jersey prosecutors successfully convinced the judge that this went beyond misselling into outright fraud. Byrne also failed to tell investors that his firm, Lumiere Wealth, was owned by Providence; a blatant conflict of interest.

Des Jeffrey, who “reluctantly” became a Lumiere director after Providence collapsed, told the court that most of the investors whom Lumiere convinced to invest in Providence were far from sophisticated.

Once he began meeting the clients who had been affected, he realised most were not seasoned investors.

Among those who lost substantial sums, the court was told, were a 79-year-old partially sighted woman and a father of four who was a first-time investor.

‘Once I had actually met them I could see quite a few were not what I would call sophisticated investors,’ Mr Jeffrey said. ‘From a professional perspective, it was a high percentage of a person’s wealth that would have gone to Providence.’

Byrne also conned an elderly, near-blind woman into signing a £1 million unsecured personal loan to him under the pretense that it was an investment application form.

A date for sentencing was due to be set yesterday.

Providence Bonds plc completes administration, investors lose 100% of their money

January 23, 2018September 21, 2018 ~ Phoenix ~ Leave a comment

Providence Bonds plc offered unregulated corporate loan notes offering annual interest of up to 8.25% over a term of four years.

The scheme first showed signs of difficulty in June 2016, when payments were made late. In quick succession it emerged that a Providence subsidiary was under investigation in the USA for offering fraudulent and unregistered securities and had been ordered to stop trading. After that the Guernsey-based holding company, Providence Global, was wound up, and Deloitte stepped in as administrator to wind up Providence Bonds plc.

The winding up process was completed a couple of months ago and Providence Bonds plc has now been dissolved.

Providence Bonds’ literature made it clear that investors’ capital was at risk, but simultaneously claimed “We have designed Providence Bonds to address many of the risks associated with Mini Bonds” and that “Bondholders have three levels of protection:

the collateral inherent in the business of factoring itself;
there is a full parent guarantee of all liabilities to the Bondholders; and
there is a debenture over all the assets of Providence Bonds II PLC the Company, in favour of the Security Trustee.”

Deloitte’s final report lays bare how much protection this actually offered investors in Providence Bonds: none whatsoever.

The most crucial parts of the report are: “Having completed our statutory duties, and following a review of the intragroup claims, no further recoveries have been identified for the benefit of the Companies’ Secured Creditor [IPM, the Security Trustee]. …Insufficient realisations were achieved to enable a distribution to be made to the Security Trustee. No distributions have been made to the Preferential Creditor. There have been insufficient realisations to enable a distribution to be paid to the Unsecured Creditors.”

Other than the grand total of £15,109 from Providence Bond plc’s cash in the bank, the money was all gone. This £15,109 was paid to Deloitte – in any company administration, the administrator stands first in the queue. The Security Trustee received nothing. The bondholders therefore lost all their money.

Significance

The 2016 collapse was widely covered in the media; Deloitte’s subsequent picking over the bones has received little press coverage. This is not that surprising as “Investors in scheme that collapsed in 2016 have still lost their money” is not news.

However, there are still plenty of unregulated loan notes around which heavily feature terms like “debenture” “Security Trustee” “multi-layered protection” in their literature. Any investor who invests on the basis of such “protection” should bear Providence Bonds in mind.

Providence Bonds’ investments were even promoted by the military charity Soldiering On in exchange for sponsorship. It is not known how many veterans lost their savings as a result of Soldiering On’s paid promotion of Providence Bonds.

Who were Providence Bonds?

At the time of the last accounts filed before Providence went bust, the directors were Antonio Carlos de Godoy Buzoneli, Paul Everitt, Adam Tattersall and James Vinall. According to the Telegraph Buzoneli was the overall controller of Providence Group.

Further action

While no money has been recovered for investors in Providence itself, the Telegraph reported in January that an investor action group had launched a Financial Ombudsman case against the FCA-regulated company who approved the marketing material for Providence’s minibonds. ~~Whether the Financial Ombudsman has awarded compensation to Providence investors is currently not known.~~

Addendum 19.03.18: The Investor Action Group has confirmed that complaints against Independent Portfolio Managers are still being considered by the Ombudsman, after an inital decision to reject the complaints on the basis that Providence investors were not customers of Independent Portfolio Managers was overturned.

We have been asked to clarify that there were two Providence Bond companies, Providence Bonds plc and Providence Bonds II plc – both went bust with 100% losses to investors.