Treasury proposes raising hoop for unregulated investments to jump through

~ Phoenix ~ 13 Comments

On 20 July the Treasury proposed a tweak to the rules surrounding promotion of minibonds and other high-risk unregulated investments sold to the public.

Currently, any firm which is authorised by the FCA, no matter what they are authorised for, can approve a financial promotion for an investment security, giving the investment the green light to be sold to the public.

It would not be fair to say that to be able to flog an unregulated investment security to the public, you need to cut out two tokens from a packet of breakfast cereal and send it to the FCA. What you need to do is hire someone else who at some point has sent in their tokens, and get them to approve your adverts.

Under the Treasury’s proposal, firms would need specific consent from the FCA to be able to sign-off financial promotions for unauthorised firms.

The Treasury’s consultation however leaves two glaring holes in the UK regulatory framework unaddressed:

  • unauthorised firms would still be free to run around Facebook, Google Ads and other advertising platforms running financial promotions, in the absence of any attempt by the FCA to clamp down on them
  • unregulated firms whose investments are advertised by the public would still be able to use “smaller company” exemptions to avoid filing full accounts and disclosing their financial position to any meaningful extent.

The Treasury seems to think the problem of billions of pounds of UK investor wealth being destroyed by inappropriate unregulated investments can be solved by taking the hoop that unregulated investment opportunities have to jump through in order to be able to enter this chaotic Wild West, and raising it slightly higher.

Without any meaningful attempt to stop such investments being marketed to unsophisticated investors, there is little evidence that this will have much of an effect.

Illustrating the scale of the problem, the Times revealed that, according to a Freedom of Information request, the FCA did not prosecute even one firm over misleading financial promotions between 2013 and 2019, fined only three groups and individuals, and did not remove a single firm’s permissions.

The FCA bleated that over 1,000 financial promotions had been amended or removed, but as promotions are often time-limited anyway, this is irrelevant unless action is taken to deter further misselling. It is equivalent to the Advertising Standards Authority’s famously pointless catchphrase “The advert may not appear again in its current form”.

The FCA’s failure to prosecute or shut down any firm between 2013 and 2019 suggests either

  • there wasn’t any problem with systemic and habitual misselling of investments between 2013 and 2019
  • the FCA doesn’t give a shit.

If anyone seriously believes the first, help is available, talk to your GP.

The FCA’s cultural belief that the misselling of high risk unregulated investments doesn’t matter causes it to act like a health and safety inspector which insists on ignoring the bloody severed limbs dangling out of every other machine. “Well you see, I’m a health and safety inspector, and those machines are clearly unsafe, so they’re not within my remit.”

 

Magna Global in default, investors say

~ Phoenix ~ 17 Comments

Magna Global has defaulted on interest payments to investors and written to investors to say that their loans may not be repaid, according to The Mirror.

The Mirror’s article was based on the story of a couple who invested £950,000 with Magna Global, and are now unable to repay their mortgage.

A year ago, in an update to investors, co-owner Chris Madeline stated “we are extremely happy with the success of our loan notes this year”. This was despite Magna Investments X (aka MIX1) posting a £1 million loss for the year ending June 2019. MIX2 is due to fil accounts by the end of this month.

The same update promoted a new tranche of bonds paying 10% in the first two years and 18% in the third and final year.

Magna Global’s bonds were misleadingly promoted by unregulated introducers claiming they provided “asset backed security”. I reviewed Magna’s bonds in November 2018 and noted that they were in reality inherently high risk.

Carlauren administrator update: CEO Sean Murray bankrupt

~ Phoenix ~ 6 Comments

The administrators of Carlauren Group have released their first report.

As previously covered, Carlauren Group holds a total of £21.7 million in properties going by their purchase prices (with one unknown), despite reportedly taking in £76 million from investors.

Carlauren owner Sean Murray
Carlauren CEO Sean Murray

A £40 million asset freezing order has been placed on Carlauren owner Sean Murray. Murray subsequently filed for bankruptcy. Carlauren’s administrators, Duff & Phelps and Quantuma, have been appointed as receivers and are investigating his personal financial affairs.

The luxury pad in Poole with unclear commercial use owned by a Carlauren shell company is being sold. No recoveries are anticipated for investors due to the property being mortgaged to Together Commercial Finance.

Eight Carlauren properties were trading as hotels, but have now all closed; three were trading at a loss, one was flooded and Covid-19 finished off the rest.

allaero_hawker_800xp

The administrators have also been busy marketing the following Carlauren assets:

  • a luxury motor cruiser named “Ademo”, sold for €455,000
  • a Hawker XS800 jet, tastefully callsigned “M-URRY”
  • a fleet of luxury motor vehicles, all but one of which seem to have gone AWOL.

One vehicle remains with a former member of staff and SIA have been instructed to collect and sell the vehicle, unforutnately due to the pandemic collection has not yet been possible. Investigations into the other vehicles are ongoing.

Jets (Bournemouth) Ltd, a modestly successful aircraft engineering business, which had been trading profitably since 2004 until Sean Murray decided he liked the look of it, has also been sold for the sum of £185,000, saving 25 local jobs according to the administrators.

According to Companies House the purchaser was Osama El Circy. El Circy is the founder of Future Green Investment, a Luxembourg company which describes itself as “a catalyst to spearhead a new global investment regime”. In addition to Bournemouth engineering, El Circy’s diverse investment interests include algae-based clean energy and, for some reason, running shoes.

The administrators anticipate that dividends may be payable to unsecured creditors of Carlauren, but due in part to the complexity of Carlauren’s scheme, how much is unclear.

Image credit: Wbarnato, CC BY-SA 3.0

Aston Darby Ponzi scheme shut down by Insolvency Service, £26m potential losses

~ Phoenix ~ 11 Comments

Aston Darby, which offered investment in car parking spaces paying 11% per year, has been shut down by the Insolvency Service after winding up petitions were presented in June. Reviews on Google allege the company had been defaulting on “guaranteed” interest payments as early as 2018.

According to the Insolvency Service, Aston Darby operated as a Ponzi scheme by paying off investors with new investors’ money rather than revenue from its car parks.

Investigators, however, established that these guaranteed returns were paid to investors from the original investments rather than income generated by the car parks.

Aston Darby also misled investors into investing in car parks that it didn’t even own yet, and on which it didn’t have planning permission.

Half of investors’ funds disappeared in commission in other charges.

The companies made misleading claims in their sales brochures and marketing materials. Documents claimed that the sites were already generating yields of 8% and failed to make clear that the companies did not own the sites when initial sales were made.

Investors were also misled into believing that planning permission had been granted for the Lode Hill site and that their funds would be specifically used to buy a parking space. However, 50% of their investments were used to fund commission and other charges by the companies and no development activity has been undertaken to convert the Lode Hill site into a ‘state of the art’ car park that investors were led to expect.

Two companies, Aston Darby Group Limited and Drake Estates Property Company Limited, have been wound up after taking £11.5 million and £14.3 million from investors respectively. The Chief Investigator for the Insolvency Service stated:

These two companies unscrupulously secured millions of pounds worth of investments from members of the public using misleading sales tactics.

The court rightly recognised the potential damage done to investors by Aston Darby Group Limited and Drake Estates Property Company Limited selling a flawed business model and has acted swiftly to shut the companies down.

In May 2020 Aston Darby had a novel idea to save its collapsed scheme; start a change.org petition.

TAKE ACTION NOW!! Your Investment is at risk due to the continued disruptive influence of the UK Government, and in particular [personal name removed – Brev] of the Government’s Insolvency Service.

According to the petition, action by the Insolvency Service prevented at least £4 million of further investor losses.

To date, simply by writing to these companies, [removed] has lost Aston Darby 4 bank accounts, 3 Legal teams, 1 company accountancy firm and over £4m in lost sales, over 160 spaces, which has impacted on the timescales of the development and led to increased costs.

Aston Darby’s attempt to rewrite the collapse of its scheme as a vendetta from a rogue agent at the Insolvency Service does not change the fact that there is no evidence that Aston Darby ever generated sufficient revenue from its car parks to pay investors returns of 11% per year, while spending 50% of investors’ money on commission and other charges, on top of the costs of running a car park.

The petition was deleted after Aston Darby received a “legal letter” from the Insolvency Service. Prior to being deleted it had garnered a grand total of 123 signatures. How many of these signatures were from investors duped by the old “Everything would have been fine if the administrators hadn’t shut us down” cliché, and how many were Aston Darby personnel, is unknown.

I reviewed Aston Darby’s scheme in January 2018 and noted that, contrary to Aston Darby’s claims to be “low risk” and “guaranteed”, the investment was inherently high risk.

Fortitude Capital goes into administration

~ Phoenix ~ 5 Comments

Fortitude Capital has collapsed into administration. Neil Bennett & Alex Cadwallader of Leonard Curtis have been appointed as administrators.

The administrators were appointed by a secured creditor, which based on Companies House’s list of charges is most likely to be Fortitude’s Security Trustee, More Group.

I reviewed Fortitude Capital’s bonds in September 2018 and noted that, despite Fortitude’s owner Ajaz Shah claiming in literature that “The foundation of Fortitude is capital preservation”, the bonds were inherently high risk.

ajazshahfortitude
Fortitude CEO Ajaz Shah

Owner Ajaz Shah was a director of MJS Capital for a single day. In my original review of Fortitude, I noted that MJS Capital had stated that it held a forex investment with a former MJS director, which I speculated was Shah’s Fortitude Capital. Shah denied this. Falsely, as it turned out.

I can clearly state that my company Fortitude Capital Ltd has never managed funds for MJS Capital Plc. – Ajaz Shah, October 2018

The last administrators’ report for MJS Capital confirmed that in reality, MJS invested £6 million with Fortitude, and only a month before Shah’s inaccurate denial, had agreed with Fortitude to write this down to £1.6 million.

Fortitude’s 2018 bonds offered investors up to 12% per year and were promoted by Direct Property Investments, an unregulated introducer which also promoted MJS. The investment literature did not disclose that Fortitude’s was in enough financial difficulty for MJS Capital to accept a 75% write-down of its investment with Fortitude a few months later.

In unaudited accounts filed for March 2019, Shah claimed that the company held £7.4 million in net assets. How much is left in the company remains to be seen. In theory, given that Fortitude Capital claimed to generate returns via forex trading, Fortitude’s assets should consist mostly of whatever liquid currency it was trading at the time.

Prior to collapsing into administration, Fortitude had handed to MJS Capital’s administrators the sum of £140,960 and a Porsche with a second-hand value of £70,000. As at May 2020 the administrators were negotiating a payment schedule with Fortitude for the outstanding balance of £605,000. Fortitude’s collapse into administration presumably makes those negotiations moot.

At time of writing the administration has not been announced on the Gazette or Companies House. An anonymous reader informed me of the administration which was confirmed by the administrators. More to follow when the administrators report.

We review Pardus’ loan notes paying 1% per month

Pardus bond logo
~ Phoenix ~ 6 Comments

Pardus offers loan notes with a 24 month term which pay interest of 1% per month, with coupons paid quarterly.

At least, that’s what their website says, but Pardus is offering special terms via introducers where that return is doubled to 2% per month, with a 2% initial charge.

As for what this means overall, Pardus’ brochure includes a worked example which calculates that the total returned for a £100,000 investment – if all payments are made successfully – would be £147,040. This is equivalent to an annual compound return of 21.3% per year.

There’s nothing wrong with introducers arranging preferential terms, but doubling the return is an extreme version of this – and anyone getting 1% from Pardus’ bonds who subsequently found out that they could have got double the return for the same amount of risk if they’d responded to a different advert, would be justified in feeling a bit miffed. The rest of this review is based on the above preferential terms which were being offered as at June 2020.

Investors’ money is to be used to invest in arbitrage trading – identifying a mismatch between prices for the same asset on different exchanges, buying assets at the cheaper price and immediately selling them at the higher one.

pardus introducer advert
Facebook advert for Pardus introducer.

At time of writing Pardus’ loan notes are being promoted by Facebook via unregulated third-party introducers who claim that investors should consider Pardus as an alternative to “bank interests at an all-time low” and the “unpredictable stock market”, going onto claim “Security of the capital invested” as a “Key Feature”. For more on these claims see below.

 

 

Who are Pardus?

Pardus is headed and owned by CEO Greg Bryce. Bryce is described in the literature as having “30 years’ experience in banking, broking and the regulatory space”.

This doesn’t tally with Bryce’s own LinkedIn page. While Bryce’s published CV does stretch 32 years (starting from his work as a Booth Manager at Refco in 1989, at age 22), Bryce spent 10 of those years selling bicycles, as CEO of triathlon shop chain Triandrun Ltd. So I make that just over 20 years in banking etc.

A minor point but I’m a stickler for accuracy when it comes to the marketing of investments paying 24% a year.

Both Pardus Fixed Income Bond Company plc and GRMA-Pardus Wealth Limited were incorporated in April 2018. Both are yet to file accounts as an active company.

How safe is the investment?

As described above, Pardus’ bonds are being advertised on Facebook by third parties as an alternative to the “unpredictable stock market” with “Security of the capital invested” as a “Key Feature”.

In reality, as with any loan to an individual company, Pardus is an inherently high risk investment with a risk of up to 100% loss.

Pardus claims that it “will utilise investors capital in connection with contract arbitrage arrangements, therefore the monies are not put at risk”.

However, to return investors’ interest and capital, Pardus has to identify enough arbitrage opportunities to successfully pay interest of up to 24% per year after its costs and any commission paid to introducers.

Arbitrage opportunities are by nature difficult to come by and there is an inherently high risk that it will not succeed.

Pardus’ literature states that “GRMA PARDUS Wealth has guaranteed to indemnify any loss incurred by PARDUS Fixed Income Bond”.

Secured lending is not risk-free as there is a risk that if the underlying borrower defaults, the security cannot be sold for enough to cover the loan.

Investors in asset-backed loans have been known to lose 100% of their money when it turned out that there were not enough assets left to pay investors after paying the insolvency administrator (who always stands first in the queue).

This is not in any sense to imply that the same will happen to investors in Pardus, only illustrating the risk that is inherent in any loan note even when it is a secured loan.

If investors plan to rely on this security, it is essential that they hire professional due diligence specialists (working for themselves, not Pardus) to confirm that in the event of a default, the assets of Pardus would be valuable and liquid enough to compensate all investors. Investors should not simply rely on what Pardus tells them about their assets.

At the time of GMRA-Pardus Wealth Limited’s last published accounts (April 2019) it was a shell company with £1 in assets. This emphasises the need for full due diligence to establish how much a guarantee by GMRA-Pardus Wealth is worth.

Pardus’ bonds are listed on the Frankfurt Stock Exchange. At time of writing no trading of the bonds is visible on the exchange, meaning the bonds are likely to be illiquid and there is a significant chance that investors would be unable to redeem their investment by selling it to another before maturity.

Should I invest in Pardus?

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 individual loan note to an unlisted startup company, 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 21% per year (net of the 2% initial charge) is inherently extremely high risk. As an individual, illiquid security with a risk of total and permanent loss, lending money to Pardus 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” or “secure” investment, you should not invest in illiquid loans with an inherent risk of 100% loss.

Total losses expected for unsecured Signature investors

~ Phoenix ~ 9 Comments

The administrators of Signature Living Hotel, the parent company of the Signature Capital investment scheme, have released their initial report.

How much the company owes to investors is difficult to pin down. Signature Capital consists of a dizzying web of 106 currently active companies controlled by Lawrence Kenwright. Although it was these subsidiaries that borrowed money from investors, a guarantee was typically given by Signature Living Hotel Ltd as the parent company.

As covered in May, Signature made an unsuccessful attempt to wriggle out of this guarantee in the High Court, a few months before going into administration. In that case the investor had loaned money to Signature Heritage (Belfast) Limited with a guarantee by Signature Living Hotel.

The administrators have totted up a total of £111 million in liabilities, the majority of which is debt owed to intercompany and related parties. It includes a £10 million provision for liabilities to retail investors, but the administrators expect “the final figure will be much higher”.

In addition to soliciting investment from retail investors, Signature borrowed money from a host of bridging lenders and other commercial lenders, secured on its freehold properties.

Even a homeless shelter opened by Signature to great fanfare, including a half-hour video documentary produced by the Grauniad, was mortgaged – to bridging lender Stoneygate. The homeless charity has found alternative premises and is said to be vacating the Signature property shortly.

The administrators say that after paying off the secured creditors,

it is anticipated that there will not be sufficient realisations to enable a dividend to unsecured creditors… however this remains uncertain

The collapse of the Signature empire probably puts the kibosh on Lawrence Kenright’s ambitions to be Mayor of Liverpool, though given the current state of UK politics, who knows.

I reviewed Signature Capital’s investments in May 2019, noting that despite claims on their website to provide “fantastic returns in a secure environment” and “a safe place [for money]”, their investments paying up to 16% per year were inherently high risk.

Despite the factual nature of my review, Signature Capital spent investors’ money on paying the law firm DWF to threaten me with a defamation claim in the weeks after I published my review. Hilariously, their complaint included an attempt to claim that Signature did not offer investments paying 16% per year, despite this coming from Signature’s own marketing material.

They claimed that my review was misleading as I had failed to regurgitate Signature Capital marketing spiel about their investments being guaranteed by Signature Living Hotel (the same Signature Living Hotel that is now in administration). According to Signature’s lawyers, I had “failed to understand or explain the nature of the guarantee”. As Signature Living Hotel is now in administration, I think we can now take it as read that I did.

Only a few days after my review was published, and while their lawyers were fruitlessly SLAPPing at me, the BBC first reported on Signature Capital’s problems with repaying investors.

Signature Capital’s problems appear to have started before then, however. On February 2019 the website signaturecapital-scam.co.uk was registered, which made various allegations against Signature Capital.

In May 2019 Signature Capital took over the signaturecapital-scam.co.uk domain, and replaced it with a website which directed investors to “Avoid Being Scammed and Invest With Signature Capital”. Subsequently the website was blanked. How Signature acquired the domain from the original aggrieved owners, e.g.  by paying them off or using legal proceedings, is not known.

Signature Capital’s repurposing of the signaturecapital-scam.co.uk domain was not their only financial promotion to investors. Both Signature Capital’s own website and owner Lawrence Kenright’s personal blog promoted Signature’s investments.

Let’s see how we compare to other investment opportunities in the UK…

Signature Investments – 11% or 8% ROI

Current accounts – 3-5%

Property – 3-6%

Retail bonds – 5-7%

[…]

As you can see from the investment table above, Signature Investments can provide an excellent return on your investment. You only have to review our proven track record to realise you can embark on a rewarding investment with a successful, passionate hospitality company.

Neither Signature Capital nor Lawrence Kenwright are authorised by the Financial Conduct Authority. Distributing financial promotions without authorisation in the UK is a criminal offence punishable by a prison sentence and a fine.

Despite issuing financial promotions to the public via the Internet for years, resulting in what seems certain to be at least tens of millions of losses, no action has been taken by the FCA against Signature Capital that is in the public domain.

Addendum

Signature’s hotel and restaurant business appears to be partially insulated so far from the collapse of the Signature Capital investment scheme. The Liverpool Echo reports that several Signature venues are preparing to reopen after being closed due to lockdown.

Despite these problems, a number of the group’s most popular venues – including the Shankly Hotel and Alma de Cuba bar in Liverpool – are preparing to open, with administrators Duff and Phelps confirming in an update that the trading operation of these venues does not fall under the scope of the administration.

Kenwright stated “while certain parts of the group may be in administration, Signature Living will continue to operate” and “it is worth noting that the value of our overall ‘bricks and mortar’ assets significantly outweighed our liabilities pre Covid”. How much it is worth is open to question given that Signature’s failure to pay investors on time began in early 2019, when Covid was a twinkle in a pangolin’s eye.

We review Strongbox’s construction machinery investment paying “up to 25% ROI per annum”

Strongbox logo
~ Phoenix ~ 5 Comments

Strongbox claims to provide “Up to 25% ROI per annum” through investment in construction equipment, which it claims to lease out to major infrastructure developers. It further claims that “In 2018, investors who leased their equipment through Strongbox made a 24.76% return on their investment”.

Strongbox is currently being promoted to UK investors by Instagram.

Strongbox Instagram advert

Cropped advert

Who are Strongbox?

Strongbox provides no information on who is behind the business. Nor is there any company registration information, making most of their claims impossible to verify.

Strongbox’s original website, strongboxleasing.com, was registered anonymously in 2016. Its current website domain, strongboxcompany.com, was registered again anonymously in 2019. Despite Strongbox providing a Hong Kong address on its website, the WHOIS details for strongboxcompany.com state that it was registered out of Bulgaria.

Strongbox claims that it has been “providing construction equipment to the global rental markets for over 14 years”. There is however no evidence provided by Strongbox that it existed before 2016.

An archive copy of strongboxleasing.com’s website from 2018 shows that it was still offering an investment scheme back then – but in shipping containers, not construction equipment.

In the real world, companies don’t suddenly decide to pivot to a completely different industry offering a completely different product to completely different buyers, while still falsely claiming to have 14 years’ experience in their new industry.

The only reason a company would do so is if its shipping containers never existed, and were simply a pretext to solicit money from investors. Apparently that story wore thin, so Strongbox has switched from pretending to generate 24% per year returns from big boxes to generating the same 24% per year returns from big trucks.

How safe is the investment?

Strongbox claims that its investment “guarantees both income and security for your investment”. The reality is that a “guarantee” is only as good as the company backing it. Any investment with an individual company is extremely high risk with an inherent possibility of up to 100% loss. This especially applies when the company does not appear to exist outside a website registered from Bulgaria.

Strongbox’s offer to take money from investors and use it to generate an ROI of up to 24% while guaranteeing income and security represents an investment security. Promoting financial securities and running investment schemes requires registration with securities regulators in almost every country in the world. In the UK, for example, where Strongbox is running Instagram ads, offering financial promotions requires registration with the FCA.

Strongbox’s website gives no indication that it is registered with any financial regulator anywhere in the world, meaning that it is committing a criminal offence in the UK and any other country in which it offers securities without authorisation.

Strongbox’s willingness to break the law and promote its investment illegally means all its claims should be considered bogus until proven otherwise. Why would major construction companies pay massively over the odds for construction equipment so that random investors clicking on Instagram ads can get 24% per year returns?

Should I invest with Strongbox?

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.

Any investment offering returns of 24% per year is inherently very high risk. As an individual, illiquid security with a risk of total and permanent loss, Strongbox’s investments are much higher risk than a mainstream diversified stockmarket fund.

Strongbox’s illegal investment promotions, failure to disclose any corporate identity and false claims to 14 years of experience are serious red flags that should turn off any serious investor.

Do not proceed unless you are prepared for total losses.

Blackmore: director says only £5m left, FCA’s “Operation Dump It On Other Countries’ Doorsteps” is dismal failure

Blackmore logo 2019
~ Phoenix ~ 4 Comments

Administrators Duff and Phelps have released their initial report into collapsed property minibond scheme Blackmore.

Of £46 million raised from investors, director Patrick McCreesh has estimated in a Statement of Affairs that less than £5 million is likely to be realised to pay them back.

Investors’ money was moved to a series of Special Purpose Vehicles which then invested in property developments. These SPVs borrowed more money from other sources, such as short-term bridging finance providers, whose loans would have been on very high interest rates.

In March 2019 Blackmore stated that “Our business model is entirely on track and current return on capital employed averages 54 per cent”. How it went so quickly from being “entirely on track” and generating 54% ROCE, to being unable to pay interest six months later and collapsing with (at least) 90% losses is unclear.

The £5 million that McCreesh estimates can be realised from Blackmore is less than the £9.2 million that would have been paid to their marketers Surge in commission. Surge ran Blackmore’s back office and marketing efforts, the same job they carried out for London Capital and Finance. (Blackmore’s December 2017 accounts suggested that Surge were paid 20% commission on virtually all the funds raised by Blackmore.)

Overseas efforts fail

In the aftermath of the collapse of London Capital and Finance, the FCA “made enquiries directly of the Company in relation to its business operations” in March 2019.

Blackmore subsequently lost its “Section 21 signoff” – the approval of its financial promotions by an FCA regulated firm that allowed its bonds to be marketed within the UK. In April 2019 it closed to all new investment from the UK, and, in an attempt to source funds from overseas, opened an office in Dubai, with further offices planned for Tokyo and Hong Kong.

To be clear, there was nothing to legally stop Blackmore from finding another FCA-regulated firm to sign off its promotions and continue sourcing investment from within the UK – provided its bonds were promoted only to high-net-worth and sophisticated investors (as they always should have been).

The inescapable conclusion is that Blackmore’s decision to stop taking money from all UK investors was to keep the FCA off their backs. Meanwhile the FCA crossed its fingers and hoped that overseas investors would somehow invest enough in Blackmore to avoid another scandal involving tens of millions of losses to UK investors.

I’m not seeing another reason to refuse to market to UK investors, even when it is perfectly legal and compliant to do so, while still taking money from overseas investors.

How did that go? The administrator’s report notes that “further minibonds totalling £2,331,340” were issued to overseas investors – so about 5% of the amount that had been raised before Blackmore closed to UK investment.

There is no indication that Blackmore had had any contact from the FCA prior to March 2019, despite the FCA being well aware that Blackmore Bonds were being systematically missold to retail investors since at least March 2017.

“Capital guarantee” schemes

The administrators note that Blackmore’s bonds were supposed to be covered by insurance policies in the event of default, from Ion Insurance Group S.A. for Series 1 bonds and Northern Surety Company, SRL for subsequent bonds.

Whether any funds will be recovered from these policies is described as “uncertain”. There is a long history of unregulated investments being marketed as being covered by insurance, which for one reason or another doesn’t pay out.

 

We review Eco Equity’s convertible bonds paying 15% per year

Eco Equity logo
~ Phoenix ~ 13 Comments

Eco Equity is offering convertible loan notes paying 15% per year. At the end of a 3 year term, investors will receive shares in the business. Investors’ funds are to be used to produce cannabis in Zimbabwe.

Its notes are currently being promoted via Facebook and Instagram, described as a “Secure Pre-IPO offer”.

Facebook ads
Ads currently being run by Eco Equity’s Facebook page. Farm Street Partners Investment Management LLP is the firm Eco Equity uses to authorise the distribution of their ads to the public.

Who is Eco Equity?

Eco Equity CEO Jon-Paul Doran
Eco Equity CEO Jon-Paul Doran

Eco Equity is headed by co-founders Jon-Paul Doran (CEO) and Timothy Ambrose (COO).

In addition to heading Eco Equity, Doran heads Axium Capital, an introducer of unregulated investments. In the last few weeks Axium Capital’s website was shut down for “scheduled maintenance”; prior to its shutdown it was marketing High Street Group bonds, under HSG’s alternative name of Keystone Property Group.

The FCA register shows that since February 2020 Doran has also been a partner in Farm Street Partners Investment Management LLP, which is the FCA-regulated company that signs off Eco Equity’s investment promotions such as the ones above.

Eco Equity Limited has been overdue with its May 2019 accounts since February 2020. This is a criminal offence under the Companies Act, and while such omissions are almost never prosecuted, an up-to-date picture of the company finances is essential to due diligence.

How safe is the investment?

Despite Eco Equity’s claims to offer a “secure pre-IPO offer” and that their notes “protect your cash with peace of mind”, these investments are unregulated corporate loans and if Eco Equity defaults – or if the shares investors receive at the end of the term cannot be sold – you risk losing up to 100% of your money.

The fact that investors are, according to reports, automatically paid with shares in the company after 3 years, rather than cash, adds an extra layer of risk compared to conventional loan notes. There is a material possibility of 100% loss if the company’s shares can never be sold.

One of Eco Equity’s ads asks investors “Tired of market uncertainty?” Given that the return Eco Equity investors receives depends entirely on what its shares can be sold for on the market, this ad is misleading. There aren’t many things more uncertain than what shares in an unlisted startup will be worth 36 months from now.

Should I invest in Eco Equity?

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 individual convertible loan note to an unlisted startup company, 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 15% per year is inherently very high risk. As an individual, illiquid security with a risk of total and permanent loss, Eco Equity’s convertible notes are 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 “secure” investment, you should not invest in convertible loans to startups with a risk of 100% loss.