Viderium administrators report, £62k left of £4.1 million invested

~ Phoenix ~ 2 Comments

The administrators of collapsed cryptocurrency bond scheme Viderium have released their initial report.

According to the report, a potted history of Viderium is as follows:

  • Viderium raised a total of £4.1 million in its bonds starting in February 2018.
  • £940,000 was invested in cryptocurrency mining machines, which were mostly deployed in Riga, Latvia and Rotterdam, Netherlands in summer 2018.
  • What was done with the other £3 million of investors’ money is not elaborated on in the report.
  • Until the cryptocurrency crash in late 2018, the company was apparently making revenue of $10,000 per day. With $1 worth about 75p at the time, that would have translated into about £2.7 million a year – which is pretty much exactly what Viderium were targeting in year 1 according to its investment brochure.
  • However, after the cryptocurrency market crashed, revenue dropped to $1,000 a day. The administrators are presumably referring to the crash of late 2018 when Bitcoin crashed from ~£5,000 in November 2018 to ~£2,700 in December 2018. It can’t be the crash of early 2018 when Bitcoin crashed from ~£12,500 to ~£5,000, because that had already happened when Viderium raised the bulk of its funds and deployed its mining machines.
  • If anyone’s wondering how a halving of the Bitcoin price translates into a literal decimation of Viderium’s revenue, I assume it’s because Viderium was mining cryptos other than Bitcoin. Exactly which cryptos Viderium would mine was not specified in the investment literature.
  • Despite Viderium signing investors up for a three year term, and the cryptocurrency market recovering six months later (Bitcoin was back to £5,000 and higher by May 2019), this didn’t save the company’s business model. Viderium resorted to hiring out director Ross Archer and his “experience in marketing and sales” to other companies. This also failed to bring in enough money to keep the scheme afloat.
  • (Shame they didn’t manage to keep any of that £3 million in reserve for when the crypto markets recovered.)
  • In November 2019 Viderium persuaded most of its investors to agree to defer their interest to the end of the term.
  • In December 2019 / January 2020 Viderium attempted to raise funds on the cryptocurrency markets to resurrect its business model. This failed, in part due to the pandemic and lockdown. In March 2020 Archer threw in the towel and consulted an insolvency practitioner about a voluntary liquidation. This led to Viderium’s Security Trustee appointing Administrators.

The £940,000 used to purchase mining equipment has been written off by Archer, who states its value as “nil” on the Statement of Affairs. Most of Viderium’s mining equipment is apparently in a shipping container in Latvia, having been moved there in 2019, and turned off in 2020 after it became clear that they cost more to run than they brought in. Axia, an independent valuation agent hired by the administrators, notes that the mining machines are obsolete, having been superseded by better models. Worse, Archer “has had difficulties in obtaining contact with the shipping company” who are storing said obsolete miners. Axia are investigating.

As for cryptocurrency, Viderium now owns the sum total of… £25. With Bitcoin having rocketed from £5,000 in March 2020 (when Archer first threw in the towel) to £36,000 at time of writing, Viderium’s chronic bad timing seems to have continued to the very end.

What about the insurance?

Viderium heavily marketed its “A rated insurance”, with the words “WITH “A” RATED BOND INDEMNITY INSURANCE” emblazoned on the front cover of its investment literature.

Whether the insurer, Willis Towers Watson, will pay out is very unclear. The insurance was not a guarantee and only covered the event of “any Actual or Alleged act, Error, Misstatement, Misleading Statement, Omission, Neglect or Breach of Duty or loss” . In itself, Viderium running out of money to pay investors doesn’t qualify. The administrators have contacted the insurer and had not received a response at the time of the report.

Ross Archer estimates that the total value of Viderium’s remaining assets is only £62,000, consisting mostly of £35,000 in cash and a £25,000 to an apparently unrelated company, Mir Marketing and Management Limited. That leaves investors facing total losses unless the insurance pays out – which in terms of unregulated minibonds marketed as “insured” would be a first in my experience.

Smith & Williamson dumps Buy2LetCars founder from Entrepreneurs’ Hall of Fame

buy2letcars logo
~ Phoenix ~ Leave a comment

Following last week’s FCA shutdown of new investment into Buy2LetCars, Smith & Williamson has unceremoniously dumped CEO and owner Reginald Larry-Cole from an “Entrepreneur’s Hall Of Fame”.

Google’s cache shows that on Friday 19th, the day of the FCA’s intervention, the hall of fame entry was still up. At some point after it was quietly removed and now returns a dead link.

Until its disappearance, the Hall of Fame entry largely repeated Buy2LetCars’ origin story which may be familiar from a very similar 2019 hagiography in The Sun:

  • the original leasing business, Creditlab, founded in 2003 when the markets were awash with easy credit
  • the credit crunch induced collapse of Creditlab in 2008
  • the wilderness years including benefits and working for a Range Rover showroom
  • and finally the triumphant return in 2012 thanks to an angel investor recruited via an advert in the Sunday Times, which resulted in the founding of Buy2letcars.
  • (And then lots more investors recruited via radio ads, and local papers, and Facebook, etc etc.)

The Smith & Williamson story does however noticeably differ from the Sun version (which was printed about a year before). Larry-Cole’s rejection by 150 different professional and institutional investors was such a key point in his life story that it forms the title of his book: Compassionate Capitalism: How I Turned 150 Nos into 1 YES.

And yet the Sun and Smith & Williamson biographies differ significantly in what those 150 Nos were actually saying No to.

In the 2019 Sun version, the 150 nos came in 2010, when Larry-Cole was trying to get the new business that would become Buy2letcars off the ground.

“Range Rover was a source of inspiration where I would check my bank account to see if I could meet the electricity bill this month but then had someone buying one or two Range Rovers in cash. It gave me the evidence I needed that people are going about their business and that the world hasn’t ended.”

So in his spare time, Reg started to reach out to business angels – investors willing to take a chance by funding small businesses – and investment capitalists. Over four years, Reg had 150 such meetings.

2019 Sun article

But in the Smith & Williamson hall of fame entry, posted a year later, the 150 “nos” had suddenly travelled through time to two years earlier, when Larry-Cole was trying to save Creditlab from the credit crunch.

That all changed in April 2008, when he got a call out of the blue saying the bank was now refusing to underwrite the company’s credit. The business had no funding, overnight. Reginald tried to hold everything together: he spent the next few years speaking to 150 sources including banks, business angels and venture capitalists, getting 150 nos.

2020 Smith & Williamson “Entrepreneur’s Hall of Fame entry”

To be fair this was all 8/10/something years ago and Larry-Cole’s been very busy since. And it’s possible that around 150 investors rejected bailing out his old business and funding the new one. Some people are haunted by certain numbers. Sigmund Freud was haunted by the numbers 61 and 62 (so badly that at one point they cunningly disguised themselves as the number 31).

Anyway, now that one version of the story has been scrubbed from the Internet, in one sense the inconsistency no longer exists.

According to Smith & Williamson,

the profile was removed promptly so that there would be no possibility of confusion or a mistaken perception that we validate any of these company’s activities

It is worth noting at this point that as it stands, notwithstanding the FCA’s “concerns” over Buy2LetCars’ finances, the company is still trading. Comments on Bond Review allege that the company has had its accounts frozen and has stopped paying interest. At time of writing, whether Buy2LetCars is actually unable to pay interest is unclear. The FCA’s restrictions allow the firm to continue making payments “in the ordinary course of business” which would seem to cover existing obligations to investors.

At time of writing, there’s been no public statement from Buy2LetCars other than a minscule small-print notice at the bottom of wheels4sure.com (the website for leasing customers) – which defies the FCA’s edict that the company must announce the shutdown “in a prominent place on all its websites” by 22 February. (I.e. the Monday after last Friday’s shutdown of new investment.) On the buy2letcars.com website (aimed at investors) and social media channels there is deafening silence.

That means there’s as yet no public statement by Buy2letcars confirming that it has suspended interest to existing investors, and if so why. The FCA has been asked to comment.

Smith & Williamson declined to comment on why Larry-Cole was recognised with a spot in its Hall of Fame in the first place. Building a profitable business or achieving a successful exit for investors would be worthy of praise. Taking in investor money for 8 years while continually posting losses and net liablities in published accounts is not. S&W’s decision to add Larry-Cole to its Hall of Fame in March 2020 therefore seems premature at best.

Smith & Williamson confirmed that Buy2letcars and Larry-Cole are not clients of the firm.

We review Redhat Group – forex investment paying ~150% per year?

Redhat Group logo
~ Phoenix ~ 1 Comment

Redhat Group claims to provide an “FCA Approved Managed FX Account” which “rewards our clients with above average returns by utilising our sophisticated Redhat Trading Platform.”

Past performance data on Redhat’s website claims that their investment delivered returns of 146% in 2019 and 153% in 2020.

There is also a live webpage on Redhat’s website offering a “Loan Note” paying 24% over 24 months, although it is orphaned (i.e. not accessible from the main website and only reachable with a Google search).

The company is currently advertising its forex investment on Facebook.

Who are Redhat Group?

Redhat directors Mike Bold and Craig Gabriel

Redhat Group plc, despite its name, is not a publicly listed company but privately owned, via Redhat Holdings Limited, by directors Michael Bold (CEO) and Craig Gabriel (COO, aka John Craig Gabriel).

Gabriel is also Chief Marketing Officer of Pardus Fixed Income Bond plc, previously reviewed here. Both Gabriel and Bold are also directors of Meredith Charles, an unregulated introducer which promotes a range of investments including Pardus on its website.

Redhat Holdings Limited was incorporated in 2016 but its latest accounts for October 2019 show it to be miniscule (£1,218 in net liabilities and £14 in gross assets).

How safe is the investment?

Redhat Group claims to offer “high returns” with “built-in risk mitigation processes”.

This claim starts to fall apart as soon as you look at its “Past Performance” table.

Redhat claim that their forex trading strategy has been “developed over a 6-year period” and produced returns of 146% and 153% in 2019 and 2020. In which case, why isn’t every hedge fund in the world beating down their door?

Probably because they can’t do basic financial maths. An investment which returned 7.69% in January, 3.41% in February, and so on, would actually have returned 272% over the year. That’s assuming you keep the capital invested from month to month and compound the returns, but when you’re making an average of 12.1% a month, why on earth would you do anything else?

So where does the figure of 146.15% come from? Adding up all the numbers on the left of it.

Redhat Group however has an even bigger issue than an inability to understand compound interest. Even if Redhat’s returns were real, it would still be breaking the law.

Redhat’s Facebook adverts and website represent a financial promotion. Issuing financial promotions in the UK requires authorisation from the Financial Conduct Authority. Redhat Group is not authorised by the FCA.

The only reason for Redhat Group to promote itself illegally instead of applying for FCA authorisation is if its fantastical returns don’t exist.

As Redhat Group has no magic strategy generating returns of 100 / 200% per year, any returns to investors will either be illusory (“numbers on a screen”) or, if real money is paid into an investor’s account, this will be funded by the investors’ own money or that of others, making Redhat Group a Ponzi scheme.

Should I invest with Redhat Group?

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 over 100% or 200% a year is in reality a virtually guaranteed loser for all but those running it. The mathematics of Ponzi schemes guarantees that the vast majority, if not all, of investors will lose their money.

Do not invest unless you are prepared for total losses.

LCF to cost legitimate finance industry and general public nearly £200 million?

London Capital & Finance logo
~ Phoenix ~ 4 Comments

Figures published by Money Marketing last week indicate that so far the FSCS has paid out £56.3 million to 2,878 investors in FCA-authorised Ponzi scheme London Capital and Finance.

At around £19,500 per investor, that’s pretty typical of the average total investment.

Apart from £2.7m for investors who transferred a stocks and shares ISA, the vast majority of that was paid for LCF giving misleading “advice”. Despite not being a financial advice firm, not being authorised to give financial advice, and employing no financial advisers, Financial Services Compensation Scheme levy payers, i.e. the general public, have been put on the hook on the basis of “I’d advise my own mother to invest in this” school of salesmanship.

864 investors have seen their claims on the basis of advice rejected (a quarter of the total).

That £56.3 million bill represents only a quarter of the total number of LCF investors. If this ratio of successful claims continues to hold true over the remaining 7,858 who have not yet received a response from the FSCS, that would cause the total bill to levy payers and the general public to reach £187 million. I’ll emphasise that this is a finger in the air calculation, and could be miles out if the FSCS has prioritised claims with more chance of success, for one reason or another.

Still, if that ends up being anywhere close to the final bill, you almost have to ask why the Government didn’t just bail out 100% of LCF investors, rather than arbitrarily excluding a relatively small number. By the time you’ve decided to compensate 75% of investors (with the potential for more if the Treasury decides to pay further ad-hoc compensation), any arguments about moral hazard have already been thrown out of the window.

LCF investors have complained regularly that the system used by the FSCS to assess claims is inadequate, frequently rejecting claims initially and then upholding them if the investor has the gumption to appeal (i.e. the same system used by the DWP to keep the UK disability benefits bill down) and relying on gibberish machine-transcribed versions of recorded phone conversations.

As I’ve regularly predicted, we seem to be heading towards the worst of both worlds where neither LCF investors as a group nor FSCS-fee-payers are satisfied with the outcome.

Real reform of the UK’s securities legislation as a quid-pro-quo for a fair and consistent (but not necessarily 100%) bailout of LCF investors would at least have salved the pain to FSCS levy-payers, i.e. legitimate financial services businesses and the general public, who would be mollified by the fact that another London Capital and Finance couldn’t happen (at least not to the same extent). But as yet the Government seems to have gone with “let’s do the same thing over again and see if it has a different result”.

Breaking: Buy2letcars closed to new investment by FCA, assets frozen

buy2letcars logo
~ Phoenix ~ 25 Comments

After over 8 years in operation, the Buy2letcars investment scheme has been closed to new investment by the FCA.

A “first supervisory notice” placed on Buy2letcars’ parent company, Raedex Consortium, prohibits the company from carrying out any regulated activities other than collecting payments on vehicle leases that were already in place.

Buy2letcars solicits investment from the public via social media, local news advertorials and radio ads. Their money was used to purchase a car to be leased out to a borrower. As the investment is unregulated, the FCA does not technically have the power to stop Buy2letcars taking in investment. However, FCA does have the power to stop Buy2letcars arranging new vehicle leases, and if Buy2letcars can’t arrange new vehicle leases, it can’t take in new investment as it can’t do anything with it.

In addition, Buy2letcars has been instructed “not to dispose of, withdraw, transfer, deal with or diminish the value of any assets it holds or receives on behalf of itself or another, otherwise than in the ordinary course of business”, effectively an asset freeze.

8 years in operation

I reviewed Buy2letcars in 2018, when the company had already been running for six years.

In its early years in 2012, Buy2letcars was advertising not just returns of 33% over three years but “a substantial six figure income”.

You keep your job and existing lifestyle and use our automated asset backed income generator system to a) realise 33% yield and b) develop a substantial six figure income.

The potential for “six figure income” appeared to rely on recommending others invest in Buy2letcars.

Once you are happy with our service and comfortable with the business you can recommend your peer groups and start earning a fortune. It is possible to replace or double your full time income within a short period of time.

buy2letcars will show you how to grow through the levels up to £250,000.

The “six figure income” claims were rowed back on shortly thereafter. The 2013 version of Buy2letcars’ website still contained details of “affiliate income” (i.e. earning commission by introducing investors to Buy2letcars) but no longer made claims about “six figure income”.

In my review of June 2018, I highlighted that Buy2letcars looked an awful lot like an unauthorised collective scheme. Investors did not just invest in a car but Buy2letcars itself, via a guarantee to return 85% of their money regardless of what happened to the car and the lease payments from it.

But until now the FCA was apparently happy for Buy2letcars to do its thang, so it’s not clear what has changed.

The FCA has stated that the reason for permissions being withdrawn was “concerns about its finances”. No further detail has been provided as yet.

In October 2018 I covered the Buy2letcars group’s 2017 accounts which showed significant losses and net liabilities. But that in itself doesn’t explain the FCA’s “concerns”, as the scheme has been posting net liabilities and losses since inception. In 2012 Raedex Consortium’s net liabilities were £172k and in 2013 £784k. Those net liabilities would only continue to mount.

In 2017 the net liabilities position improved from minus £6.8 million to minus £2.9 million, but only because the group managed to magic up £4.8 million of goodwill, representing “the expected future value of profits”. Where these profits were going to come from was unclear from the limited information disclosed in the accounts, given that the company continued to post losses.

The recently filed 2019 accounts showed more of the same – more losses and expanding net liabilities.

As at December 2019, Buy2letcars had taken in £34 million of investment, as far as we know from the “other creditors” line in its unaudited and limited accounts. How much it has taken in since is not yet known.

What happens now?

The FCA has emphasised to Buy2letcars’ existing borrowers that they should continue to make the lease payments on their vehicles.

So in theory, everything for existing Buy2letcars investors just carries on as before, and their interest will continue to be paid from the interest Buy2letcars receives from its borrowers.

But if the FCA has concerns about Buy2letcars’ finances, its a fair bet that investors will now share them, notwithstanding that Buy2letcars continues to claim on its website to be “protecting your assets
for peace of mind”.

Watch this space…

Literary Review

Buy2letcars owner Reginald Larry-Cole’s booky-wook, Compassionate Capitalism: How I Turned 150 Nos into 1 YES, had previously rocketed from 981,479th in October 2019 to the heady heights of 373,779th in January 2021.

In more bad news for Larry-Cole, the best-seller rating has since collapsed to #1,658,028. On the positive side, it retains its 5-star rating from 6 reviews.

Buy2letcars gave out “free” copies of Larry-Cole’s tome to new investors (if something that comes with a minimum investment of £7,000 can be accurately said to be free).

Hat tips to a pseudonymous contributor and Mark Taber who separately flagged the FCA’s shutdown.

Addendum 22.02.21

Buy2letcars has hit back at the FCA shutdown, stating:

We are surprised at the FCA’s interpretation of accepted accounting standards and principles,” said the directors of Raedex Consortium, which owns the business.

Although our company is well financed with a strong cashflow and bank balance, the FCA is putting 24 jobs at risk with this bizarre decision.

We would like to reassure our customers that we fully intend to challenge this and will be in touch with them directly this week.

By “customers” they presumably mean “investors” as the customers hiring the cars have no particular reason to be fussed.

Fundamentally this is not an issue of accounting standards but whether Buy2letcars can demonstrate that it can consistently earn enough from leasing out its cars to pay investors 11% per year, on top of all their other costs, while meeting its guarantees to make good any losses to investors from the individual vehicles.

Bentley Global finally files 2019 accounts

~ Phoenix ~ 20 Comments

Bentley Global has filed accounts for August 2019, 5 months overdue (even after allowing for the Covid 3 month extension). In doing so it has earned a reprieve from a strike-off action issued by Companies House in November and suspended the following month.

Bentley Global’s August 2018 accounts showed that it had raised £4.8 million in its bonds paying 12 – 20% per year. That figure swelled to £8.6 million by August 2019.

The accounts are unaudited and did not include a profit and loss account, despite CEO and former chartered accountant Alan Bentley claiming

We’re not going to hide – every month we’re going to publish our figures fully audited so our clients can see exactly what we’re earning

What can be gleaned from the limited information released by Bentley Global is:

  • Despite the amount owed to investors increasing by £3.8 million, current assets increased by only £1.2 million.
  • While the company did not file a profit and loss account, the movement in the “profit and loss account” on the balance sheet shows a loss of £5.3 million. Around £2.8 million of that represents the depreciation in value of the magic algorithm that Bentley Global uses to generate its returns from sports betting. This algorithm was modestly valued at £27 million in 2017 despite apparently being capable of generating returns of up to 20%pa from betting on football.
  • £540,000 has been invested in betting pools – on a book cost basis (i.e. the amount put in the accounts). How much is in the accounts now is not stated, despite the aforementioned commitment to “publish our figures fully audited”. Bentley Global claims, as it did last year, that “the undue time and cost of valuing the asset by the director does not warrant establishing a true and fair value”.
  • Another £4 million is booked in accruals and deferred income and other debtors.

Seems to me that after taking 17 months to file the accounts, it wouldn’t have been that hard for Bentley Global to obtain values as at August for what was in its betting pools, perhaps while football was suspended due to the pandemic.

The directors state that there are no material uncertainties over whether the company can continue as a going concern.

Bentley Global allegedly stopped paying interest on its bonds last year, citing the pandemic. Whether it has been able to catch up now that football is back on again (and it is worth noting that most of the matches that Bentley Global wasn’t able to bet on during Lockdown 1 did eventually happen) is unclear.

The big test for Bentley Global has arrived as the first capital repayments of its three-year bonds fell due in November 2020. [This sentence was originally written as if November 2020 was in the future – thanks Charlie for spotting.]

IPM liquidators report, FCA drops case despite £16m investor losses

Independent Portfolio Managers logo
~ Phoenix ~ 6 Comments

Independent Portfolio Managers facilitated two minibond investments which collapsed back in 2015 and 2016, Secured Energy Bonds and Providence Bonds, losing in the region of £8m each.

Independent Portfolio Managers was found ultimately responsible for the collapse of the unregulated investment scheme – ultimately passing the bill to the wider regulated financial industry and their customers – after the Financial Ombudsman Service found that Independent Portfolio Managers had misled investors through the literature it approved on the schemes’ behalf.

IPM was finished off by the zombie corpse of its former customer, after the administrators of Secured Energy Bonds put it into administration seeking £5.6 million.

The liquidators have now issued their second progress report.

It transpires that in 2016, IPM sold its minibonds business to a third party, a half-sister company whose majority owner was The Investors Partnership Limited, which also owned IPM. There is no sign that any consideration was paid for this business.

The liquidator’s lawyers contacted the purchaser, asking them what happened to the money. The purchaser cold-shouldered them.

Letters were sent to the purchaser and IPL requesting payment of the outstanding consideration. Weightmans LLP also requested further information from the Company directors regarding the Sale. The parties did not respond substantively.

£10,000 has been raised from a litigation funder to pursue the alleged missing consideration, with any proceeds to be split 50/50 with the liquidators and the funder.

The last bit of news from the report is that the FCA was carrying out an investigation into IPM’s misleading minibond promotions and its directors. The liquidators confirm that the FCA has closed its investigation and will not be taking any further action.

While it may have been responsible for “only” £15m in investor losses, a far cry from the collapse of a London Capital and Finance or even a Blackmore, the tale of Independent Portfolio Managers is significant due to the way it opened a new door for the general public to be put on the hook for unregulated investment schemes.

Both Providence Bonds and Secured Energy Bonds were unregulated investment schemes, with neither company authorised by the FCA. They needed an FCA-authorised firm to legally be allowed to promote their bonds to the public – which was IPM. When both schemes collapsed, the Financial Ombudsman initially refused to consider claims against IPM on the grounds that IPM worked for Providence and SEB, not the investors. The investors took legal advice and persuaded the FOS to reverse its stance.

IPM was inevitably found guilty of producing misleading literature and found liable for investors’ losses. As it had no funds whatsoever to meet those claims, investors’ claims were paid by the Financial Services Compensation Scheme, i.e. the general public via the levies on the regulated financial industry.

And so the precedent was set that as long as you could get an FCA-regulated company involved somewhere, the general public could be held liable for a collapsed investment scheme even if it was otherwise entirely unregulated.

But the FCA has apparently decided that there’s nothing more to be done and no case to answer. So that’s alright then.

Bailey-Gloster LCF spat distracts from real issue

London Capital & Finance logo
~ Phoenix ~ Leave a comment

An unedifying dispute broke out this week as Andrew Bailey testified to a Treasury Select Committee about the collapse of London Capital and Finance.

In one of the more depressing sections of Dame Gloster’s report into the FCA’s mishandling of the FCA-authorised Ponzi scheme (in a crowded field), Dame Gloster highlighted how, instead of using the investigation as an opportunity to learn from its mistakes, the FCA instead tried to shirk responsibility, claiming that holding individuals responsible for their failings might deter people from applying to be senior bureaucrats, and questioning whether, in a very real sense, there was any such thing as responsibility at all.

It also claimed that nobody could have seen the collapse coming (they did) and that the investigation was using the benefit of hindsight (it wasn’t).

Before the Select Committee, current Bank of England Governor Andrew Bailey tried to reverse ferret out of this dodging of the philosophical concept of responsibility, claiming that the report had made a “fundamental misunderstanding” and that he had only sought to remove personal names from the report where they related to “culpability” rather than “general responsibility”.

Gloster for her part refuted that there had been any misunderstanding and stated in an open letter that Bailey’s attempt to have his name removed from the report went beyond what Bailey claimed, and “the distinction between personal culpability and responsibility was merely one argument”.

Before the Committee, Bailey also claimed that Gloster “put it to you that if only we told the staff to pull their socks up the problem would have gone away”. How Bailey got that impression from Gloster’s forensic, comprehensive, nearly 500 page report is a mystery to me.

This is more than a case of “he said, she said”, because implying that the Governor of the Bank of England has not been straight with Parliament is a very serious matter. And yet it is still a side issue.

The best defence for Andrew Bailey would have been to say “Yes, we ignored the numerous whistleblowing reports from reputable professionals and the general public, failed to consider whether a company systematically misselling high-risk bonds needed more investigation then telling them to change the adverts, and wrongly dismissed the whole scheme as ‘not our problem’. But I was merely one big cog in a crappy machine. The entire UK securities law framework is not for purpose, and creates a pathway for high-risk investment schemes to be systematically sold to the public. I screwed up, but because there is a framework that allows you to sell high-risk unregulated investment schemes to the public, as long as you separate out the promotion of the scheme from the investment scheme itself, it was inevitable that someone would screw up.”

But Bailey can’t say that. Because the Governor of the Bank of England can’t tell the world that the UK securities law framework is not fit for purpose. In an interesting new version of the Peter Principle, Bailey has been kicked upstairs into a position of responsibility that gives him too much to lose by calling out the incompetence of those above him.

One of the implicit jobs of the head of the Bank of England, in between taking the flak from savers for lowering interest rates or borrowers for raising them, is to maintain confidence in UK PLC. So admitting that the UK is the scamming capital of the developed world is not going to happen.

London Capital and Finance collapsed two years ago, and there has been no serious movement since then towards:

  • Reforming the UK’s securities law, starting with the Financial Services and Markets Act 2000, to ensure that any firm offering investment securities to the public must register with the Financial Conduct Authority (or equivalent). In contrast to the current system that randomly exempts loan notes and other schemes that try to dodge the UK’s more limited ban on collective investment securities.
  • Reforming the FCA from the top down and rooting out its “regulatory perimeter”, aka the cultural attitude of “if it’s unregulated it’s not our problem”.

London Capital and Finance investors are at present still anxiously waiting to see whether the Treasury will announce further compensation for those left behind by the essentially random compensation payments made so far. (E.g. to people who transferred stocks & shares ISAs but not, for no discernible reason, cash ISAs, and people who successfully convinced the FSCS they received advice from a firm which was not a financial advice firm and employed no financial advisers.)

The legitimate financial industry and the general public, who will ultimately have to pay for any further compensation, are anxiously waiting to see whether Parliament will do anything to stop it happening again, and again, and again.

Hudspiths liquidator reports, funds “apparently misappropriated by directors”

~ Phoenix ~ 7 Comments

The administrators of the collapsed forex Ponzi Hudspiths Limited have released their first full report after being appointed.

Hudspiths launched in 2015 and promised to pay investors 5% per month while paying its introducers 2% per month. There is no evidence that it ever had any means to generate returns of 7% per month (after costs) from its capital (because there’s no such thing), meaning that Hudspiths constituted a Ponzi scheme.

It collapsed in 2018. Investors defeated an attempt by its directors to cover their tracks by putting the company into voluntary liquidation; instead the company was put into compulsory liquidation in 2019 with the aim of having a better chance of finding where the money went.

Contrary to sex shop owner and Hudspiths director’s Karl Lubienicki, who claimed to the Daily Mail “There’s no money missing. You can’t hide £50million” and that only £7.5 million was outstanding to Hudpsiths creditors, the administrators report that £85 million of claims have been received from 153 creditors. In the original Statement of Affairs, there were only 109 creditors with debts totalling £41 million.

Some of the increase to £85 million might result from investors trying to include their imaginary Ponzi returns in their debts, but the number of creditor claims ballooning by 40% seems likely to be a factor as well.

The administrators have taken legal action against the directors (Lubienicki and Lancelot Hudspith) alleging misappropriate of funds.

We also took immediate legal action against the former directors of the company to protect the interest of creditors. The claim relates to monies which appear to have been misappropriated by the former directors and is based on the very little information we have been provided in the books and records of the company.

So how does 40 / 50 / 85 million not disappear?

The directors’ original statement of affairs detailed the following assets:

  • A £4.4 million investment into ATFK Training Ltd, a shell company which dissolved without filing accounts
  • A £1.9 million investment into an unspecified company, and £500,000 invested in various entities; however these investments were made in the name of one of the directors and not by the company itself
  • £580,000 in a trading account; however when the administrators opened the box, it had been cleared out
  • £59,600 of cash in the bank, which has been recovered
  • Some trivial amounts in machinery, fixtures and fittings

These of course only total £7 million odd even if they were recovered – which of course isn’t going to happen. Where the other tens of millions invested in Hudspiths has been not-hidden is currently unclear.

Harewood Associates update: SPV investors given cold shoulder, FCA-kitemarked reboot disappears

~ Phoenix ~ 8 Comments

The administrators of Harewood Associates have released their latest report.

£2.8 million owed by another Kiely-owned company, Lansdown Investment Management, has now been fully repaid.

The administrators are however still expecting only 7p in the pound to be paid to Harewood Associate’s £32 million worth of unsecured creditors.

In further bad news for Harewood investors, those who invested in Special Purpose Vehicles (SPVs) have been told that they will not be considered creditors of the company. While the whole point of setting up an SPV is usually to keep its debts separate from the main company, Harewood investors had previously been given hope of being included in the main administration (if being added to an administration which projects 7p in the pound can be viewed as such a thing). This suggests some sort of corporate guarantee.

The idea was sufficiently strong for the administrators to hire a barrister to look into it, however having done so, they have concluded that the SPV creditors are not creditors of Harewood Associates itself.

FCA-kitemarked offshoot closes its doors via voluntary strikeoff

Harewood owners David and Peter Kiely owned another property firm, Monmouth Regent plc.

In an echo of the Harewood scheme, Monmouth Regent plc was previously offering bonds paying 8% per year on its website.

We are delighted to be able to invite you to participate in Monmouth Regent PLC’s inaugural offers for subscription of 8 percent five-year fixed rate secured loan notes.

Monmouth Regent plc website as at May 2020

In July 2020 Monmouth Regent plc was voluntarily struck off the register, suggesting that its fundraising never actually took place (or you would expect creditors to object). Its website monmouthregent.co.uk has also disappeared.

Harewood Associates illegally advertised its bonds directly to the public and claimed that its loan note offering was exempt from UK securities law because Harewood was a property company. As I’ve pointed out before, this is like me soliciting investment from the public in a fast food business and claiming securities law doesn’t apply to me because I’m regulated by the Food Standards Agency.

In contrast, Monmouth Regent plc’s website stated that its offering was approved by an FCA-regulated company, Monmouth Regent Capital Limited, as an appointed representative of Blackheath Capital Management.

The trouble with this claim is that Monmouth Regent Capital only held its appointed rep status from May 2015 to August 2016.

Given that Monmouth Regent plc apparently came and went without taking in any money, or doing anything whatsoever (it filed accounts as a dormant company until its directors struck it off the register) there’s nothing too untoward about it having out-of-date information on a moribund website. However, archive.org shows that Monmouth Regent’s website changed significantly at some point between January 2019 and May 2020, while leaving the false claim to have FCA-authorised sign-off for its ads.

Harewood Associates website in 2016

The shuttering of Monmouth Regent leaves one enduring mystery: why Kiely 1 and Kiely 2 went to the bother of (very briefly) securing FCA authorisation via Blackheath in order to promote their new 5 year bonds, when in their world, property companies are exempt from UK securities legislation.

Despite promoting its investments directly to the public from at least 2013 until its collapse, resulting in at least £32m of investor losses, no enforcement action has been taken against Harewood that is in the public domain.