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.

Krono Partners administration report: £4 million of investors’ money depends mostly on a “Company X” in the Cayman Islands

December 3, 2018December 2, 2018 ~ Phoenix ~ Leave a comment

Last week the administrators of Krono Partners PLC, top-10 accountancy firm Smith & Williamson, published their initial report into the company.

Smith & Williamson was appointed as administrators after Krono Partners stopped paying interest on its bonds in March 2018. This was apparently due to bank accounts operated by Jade State Wealth, a subsidiary of Krono’s escrow partner Accounting Worx Limited, being frozen.

Why Krono Partners has been unable to find another payment administrator, if this was the only thing preventing it from making payments, and has had to undertake the dramatic (and expensive) step of going into administration, is not addressed by the administrators.

Who are Krono Partners?

Krono Partners invested in a range of investments via a company registered in Nevis (a small island in the West Indies) known as Krono Capital SA (or KC), to which investors’ money was loaned. KC is described as an “investment partner” by the administrators.

The initial management of Krono Partners at its incorporation in 2013 were Ivan Rosenschein (Managing Director), Glenn Teller (director), Ulrik Debo (Consultant Advisor), Rune Vind (Consultant Advisor) and Lenka Kalkovska-Vind (Head of Administration).

Glenn Teller left Krono in 2015 due to being abroad and not being able to devote enough time to the company.

Ivan Rosenschein left in 2016 as he had a business opportunity which required him to resign from all other companies. Rosenschein is currently working as a publicist for Danish actors and artists.

Vind and Kalkovska-Vind left also left in 2016 for “personal reasons”.

When Rosenschein left Krono, management discussed whether to wind up the company and repay bondholders early, or keep it running. They decided to keep it running and Rene Lauritsen, a partner of KC, was appointed sole director, with the entire share capital of Krono Partners transferred to him. How much Lauritsen paid to acquire the share capital of Krono Partners is not known.

In 2017 Krono’s investments were transferred from KC to Krono Partners, since when it has held investments directly rather than via the Nevis company.

Statement of Affairs

The administrator has identified a total of just over £4 million owing to creditors. This does not include the costs that Smith & Williamson will charge for the administration, which stand first in the queue. (Smith & Williamson’s fee basis has not yet been agreed with the creditors’ committee.)

The administrators’ Statement of Affairs contain a list of assets, provided by Krono’s directors, which have a total “Estimated to Realise” value of £5.7 million. The total amount used to purchase these assets (“Book Value”) were, according to the same table, just under £8 million. However, despite Krono Partners managing to lose c. 30% of its money in a 9-year bull market, it still apparently has £5.7 million to cover the total creditor claims of £4 million.

So, everything is fine and creditors can get paid as soon as Krono Partners has managed to find itself a working bank account. Right? Maybe. The administrators are at pains to point out that the list of assets comes from Lauritsen.

[6.1] We make the following observations:

* the estimated realisations are those of the director, creditors should be aware of the speculative nature of the investments

The administrators go on to say that despite the Statement of Affairs showing a surplus of assets over liabilities, the value of the assets is too uncertain to confirm whether investors are likely to get their money back.

[9] Estimated outcome for creditors

The joint administrators are not currently in a position to provide an assessment of the likely outcome for unsecured creditors given the uncertain nature of the Company’s investments.

Krono investors are being kept almost entirely in the dark as to what these investments actually are.

[7.1] We have not revealed the names of any of the entities in which the Company holds equity or debt investments or its joint venture partner in relation to ETNs [Exchange Traded Notes] as we consider this information to be commercially sensitive at this stage.

The assets of Krono Partners are listed in the administrators’ report as follows:

Listed shares: 42,500,000 shares in an unnamed US listed company, described as “restricted” due to the high proportion of shares owned by Krono. The administrators are working to obtain a share certificate for this shareholding; the first was lost in the post by the courier.
Unlisted shares: Krono has “a significant level of shares” in two unlisted entities (both in the US) referred to as Company A and Company B. Both are supposedly to be listed on stock exchanges (in the US and Canada respectively) within the next six months.
Micro loans: three micro loans totalling £532,608, one to the listed company mentioned above, and the other two to companies not already mentioned. The value of these loans has been written down to £398,493 by Lauritsen.
Other debtors: £85,000 from the realisation of an equity investment, which the administrators have since received.
ETNs: Krono has invested in an Exchange Traded Note platform run by “Company X”, a company registered in the Cayman Islands. In return, every time a company raises funds using Company X’s platform, Krono is entitled to a percentage of funds raised. None of these ETNs have concluded at the time of the administrator’s report (which means that Krono hasn’t yet seen any money from this investment), but 10 such fundraisings are reported to be in progress on this platform. Krono’s anticipated cut of these fundraisings accounts for £4.5 million of the £5.7 million anticipated by the director to be available to pay creditors, by far the largest part.
£93,289 in cash (which the administrators are trying to release to the administration estate account).
$49,729 in a share trading account with Interactive Brokers inc.

So in summary, whether there is actually enough money to pay investors depends largely on whether the anticipated returns materialise from Krono Partners’ investment in “Company X”.

This in turn depends on whether Company X is successful in raising corporate finance on its ETN platform on behalf of other companies, so that Krono gets its cut.

Whether these returns materialise will perhaps become clearer in the next administrator’s report. This will be due seven months after the start of the administration, i.e. April 2019.

Ulrik Debo, Krono Partners’ “Consultant Advisor” since inception, is also a partner in “Company X”. How this obvious potential conflict of interest was managed is not discussed in the administrator’s report.

Where did the £8 million come from?

As mentioned above, the list of assets provided by the director claims that £8 million was invested in the assets now owned by Krono (the book value column), which are now estimated to be worth £5.7 million (the estimated to realise column).

However, Krono Partners only raised a total of just over £4 million from its bonds – £3.5 million from its “Distressed Asset Bonds” lauched in 2013, and half a million from its “Micro Loans Bonds” launched in 2016. Where did the other £4 million come from? There’s no indication either in the list of creditors or in the list of shareholders.

Krono Partners PLC’s accounts filed to date (up to June 2016) contain no indication that it previously possessed £8 million in assets.

Another one for the administrators to clear up in due course.

Distressed property

Hang on a sec. Wasn’t Krono Partners supposed to invest in distressed properties, do them up, de-distress them, and sell them on to generate returns for bondholders? Its original bonds were even named “Distressed Asset Bonds”, from which the large majority of investors’ money came from (£3.5 million of £4 million). Why is almost all the money now in unnamed US companies and ETN platforms in the Cayman Islands?

According to the administrators, while Krono Partners management initially identified some distressed properties, and went so far as to have contracts in place, they realised that it would take 12 to 18 months to realise a return from these properties. This meant it would take too long to generate a return to meet its regular payments to bondholders.

One would think that Krono’s management should have spotted the screaming misalignment between their debt structure and their proposed project before they took money from investors and started trading, not afterwards.

It shouldn’t take an ICAEW member to see that if you propose to raise money from bondholders in exchange for bonds paying regular interest back to them, then either 1) You should have a project which is likely to generate continuous earnings from which interest can be paid. Or 2) If earnings will only be generated at the end of the project (i.e. when the distressed asset is sold), then bonds which roll interest up and pay interest at the end of the term would make more sense.

Perhaps former MD Roscenschein was better suited to promoting the shining stars of Scandi drama than the tedious business of corporate finance all along.

Anyway, this is now ancient history. While Krono Partners apparently invested in a few entities relating to property development at some point, the administrators note that none of the current assets of Krono Partners are property-related.

2014 FCA investigation

Another interesting fact to emerge from S&W’s report is that Krono Partners was investigated by the FCA in 2014, shortly after launch. The FCA reviewed the company and took no further action.

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

MJS / Colarb Capital in the Evening Standard: CEO Shaun Prince claims “all our investors are fine”, calls them liars and blames them for investing

November 30, 2018November 29, 2018 ~ Phoenix ~ 16 Comments

Troubled unregulated bond issuer MJS Capital was the subject of an article in the Evening Standard on Wednesday.

The article focuses on the worries of a handful of investors who loaned money to MJS Capital via its bonds, have not received interest on time, and have attempted to redeem their bonds. Some have succeeded in redeeming their bonds after a long delay, others are still waiting to receive their money.

Such complaints will be familiar to anyone who has read the comments section of our original review or related articles.

CEO Shaun Prince claims that some of these investors are lying about being MJS Capital investors. The investors in question provided documentation to the Evening Standard proving they are in fact investors.

When confronted by his customers’ complaints, Prince said some investors would “lie through their teeth” when it came to getting their money back and asked: “How do you know they’re real investors?” The investors deny they’re lying, and some sent the Evening Standard supporting documentation to their case.

Prince also claims that investors are being unreasonable for wanting to redeem their bonds early. The Evening Standard notes that MJS’ own literature says that early withdrawals are allowed subject to 30 days’ notice and a penalty. In at least some cases, even this shouldn’t be necessary, because MJS Capital’s original investment terms & conditions makes it clear that if a “Default Event” occurs, which includes the late payment of interest, the bonds become “immediately repayable at par”. No penalty, no notice period.

This distinction is largely moot because Prince has admitted to the Evening Standard that MJS Capital is not currently able to repay the bonds anyway.

Prince said that was subject to the company being able to repay it.

Nonetheless, I fail to see how investors are being unreasonable by wanting to stick to the terms under which they handed their money over.

Banking issues continue

MJS Capital is sticking to the story that the failure to pay interest and redemptions on time is a result of MJS falling foul of their banks’ anti-money-laundering rules, which in turn is due to the former presence of Liberal Democrat peer Lord Razzall on their board, plus “a payment from a wealthy client with a Middle East bank account”.

It is now eight months after Lord Razzall resigned from the board in an attempt to resolve these issues.

Prince has blamed the investors for their situation, saying that if they weren’t sophisticated investors they shouldn’t have invested in the bonds in the first place.

He blamed brokers for introducing naive investors into the scheme, saying it was made clear in the documentation that the bonds were only for sophisticated investors. “Why are investors self-certificating as sophisticated investors?” he asked. “That’s the real question here.”

Prince’s attempt to blame the victims of MJS’ banking issues ignores the fact that under UK regulations, unregulated companies which rely on the “sophisticated investor” exemptions to offer investment securities without being regulated, are responsible for making sure their investors do actually qualify as sophisticated.

FCA Handbook COBS 4.12.11

A firm which wishes to rely on any of the self-certified sophisticated investor exemptions (see Part II of the Schedule to the Promotion of Collective Investment Schemes Order, Part II of Schedule 5 to the Financial Promotions Order and COBS 4.12.8 R) should have regard to its duties under the Principles and the client’s best interests rule. In particular, the firm should consider whether the promotion of the non-mainstream pooled investment is in the interests of the client and whether it is fair to make the promotion to that client on the basis of self-certification.

For example, it is unlikely to be appropriate for a firm to make a promotion under any of the self-certified sophisticated investor exemption without first taking reasonable steps to satisfy itself that the investor does in fact have the requisite experience, knowledge or expertise to understand the risks of the non-mainstream pooled investment in question.

Whether this particular buck can be passed to MJS Capital’s brokers depends on whether leaving it to unregulated introducers (such as Direct Property Investments, who previously promoted MJS Capital’s bonds, and are quoted in the article) can be considered “reasonable steps” in the regulatory sense.

Prince’s last quote in the article is “As far as I am aware all of our investors are fine”. Which given what has gone before is dangerously close to Comical Ali territory.

Another MJS Capital shell company to be dissolved

In other MJS Capital news, another shell company previously used by MJS Capital in an attempt to resolve its banking issues (as disclosed in note 10 of its September 2017 accounts) is to be struck off the register.

This follows at least one (possibly two) other MJS Capital shell company/ies being put into administration / liquidation earlier this year, as covered here a couple of weeks ago.

MJS Cap Ltd director Martin Westney filed the application earlier this month. According to its (unaudited) March 2018 accounts, MJS Cap Ltd was at that point the shelliest of shell companies with no assets other than 4 pounds in share capital. (Although MJS Capital‘s September 2017 accounts said that MJS Cap Ltd held £26,871 in cash on MJS Capital’s behalf – but this was six months earlier.) Its dissolution would therefore seem a formality.

Apparently this particular attempt to resolve MJS Capital’s problems with its banks hasn’t worked.

Shaun Prince claims Bond Review is run by a boiler room in Bournemouth

Neither Shaun Prince nor MJS Capital has attempted to contact this journal directly (nor vice versa), but apparently he is not unaware of our coverage. The Evening Standard’s Jim Armitage tells me that Shaun Prince has got it into his head that Bond Review is run by a boiler room outfit based in Bournemouth.

(For those unfamiliar with these terms, a “boiler room” cold-calls prospective investors to sell them worthless investments. Anyway, back to MJS Capital.)

I think the ludicrousness of this allegation can mostly speak for itself. But for the record, if I was going to run a boiler room outfit, it wouldn’t be in Bournemouth.

We review Finnigan-McNeil Properties’ unregulated investment in property development paying 10% – 21.1% per year

November 29, 2018January 13, 2019 ~ Phoenix ~ 9 Comments

Finnigan-McNeill Properties offers investment in property renovation with an advertised 10% Return On Investment (ROI).

Investors invest in individual properties which Finnigan-McNeill renovates and either sells or rents out.

Finnigan-McNeill’s website makes clear however that the company is committed to a 10% “guaranteed” return regardless of whether the property the investor invests in makes a 10% return on sale.

10% Minimum Fixed Guaranteed Return
Looking to get a better return from your savings than what the banks are offering?
We offer a GUARANTEED Minimum Fixed 10% ROI

On their website, this return is described as a 12 month investment (“Receive your initial investment plus your minimum Fixed 10% ROI within 12 months”). However, the website also holds out the possibility that investors may be able to realise their 10% ROI quicker than this if the property is sold quickly enough, and reinvest their funds. The website suggests that investors can make a 21.1% annual return by investing in a property which exits in six months paying 10%, and then another which exits in six months also paying 10%.

Who is Finnigan-McNeill Properties?

No details of the directors of Finnigan-McNeill are provided on its website. Companies House shows that the directors are Darren James McNeill and Kay Louise Finnigan, who jointly own the company.

Finnigan-McNeill Properties Limited was incorporated in January 2017 and its last accounts (made up to January 2018) show it to have minus £10,402 in net assets. These accounts were unaudited due to Finnigan-McNeill’s small size and did not include a profit and loss account.

How safe is the investment?

This is an unregulated investment in a small company and if Finnigan-McNeill Properties fails to make sufficient returns to pay its investors 10% per year, you risk losing up to 100% of your money.

Finnigan-McNeill “guarantees” to pay its investors a return of 10% on their property. This means you are not just investing in a particular property, but the financial strength of the company as a whole.

While it is perfectly possible to renovate a cheap property and generate a 10% return (after costs), there is no guarantee that Finnigan-McNeill will be able to do so consistently, while meeting its own costs.

If the company is unable to meet its guarantee to pay a return of 10% to another investor, they will be unable to carry on trading and renovating your own property.

Illegal financial promotions

Finnigan-McNeill’s website represents a clear financial promotion, with repeated inducements to invest.

Are you looking at how you can maximise the growth of your existing capital funds?

Are you currently saving for your next BTL deposit?

Are you looking to reduce the time length for your next BTL purchase?

Leaving your current funds in a “savings account” offering a low APR isn’t maximising its full potential, and it is making you miss out. It is possible to gain a minimum 10% ROI (or up to 21.1%) with us.

Not having your money working for you is in essence losing you money!

It is illegal to issue financial promotions in the UK without authorisation from the Financial Conduct Authority, unless the promotion is issued to a very narrow category of high net worth and sophisticated investors. A search for Finnigan-McNeill Properties on the FCA register produced no results.

Finnigan-McNeill’s website is highly misleading, with repeated references to the investment as “guaranteed”, which it is not. No references to the risk that Finnigan-McNeill defaults on its “guarantee” to pay its investors 10% per annum is mentioned anywhere on its promotional website.

The website also misleadingly pretends that investors looking to get a better rate of return from their cash savings are a suitable target market for an extremely high risk investment into a small unregulated company.

“Legal Charge”

Finnigan-McNeill states that investors will have a legal charge over the property they are investing in.

Investors should not assume that as they have a legal charge over a property, there is no risk of losing money. If Finnigan-McNeill goes bust because they are unable to meet their commitment to pay a “guaranteed” return of 10% per year, investors may be left with a legal charge over a building site, which is worth considerably less than a completed property. Recovery would depend on what investors could get for a property in the middle of refurbishment in the North of England, for which there is a very limited market.

The pre-renovation value of properties purchased by Finnigan-McNeill, according to its website, range from £22,500 to £58,000.

Investors should also conduct professional due diligence to ensure their legal charge over their property is watertight.

Should I invest in Finnigan-McNeill Properties?

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 unregulated investment into a small 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 offering yields of up to 21.1% a year should be considered extremely high risk. As an individual, illiquid investment with a risk of permanent loss, Finnigan-McNeill Properties is much higher risk than a mainstream diversified stockmarket fund.

In addition to this, Finnigan-McNeill’s brazen disregard for the Financial Services and Markets Act, combined with their claim to provide “guaranteed” returns of up to 21.1% per annum, raises a very large red flag. Given that they are in constant contact with solicitors as part of their property business, is it really feasible that none of them pointed out to them that it’s illegal for unregulated companies to solicit investment from the general public over the Internet?

If you are looking for a “guaranteed” investment, you should not invest in loans to micro-cap property companies with a risk of 100% loss.

UCG Trust disappears?

November 27, 2018November 5, 2018 ~ Phoenix ~ Leave a comment

In February I reviewed UCG Trust, which claimed to be a US-based company offering P2P investments paying up to 13.5% per year, while “eliminating all the risk to investors”.

The company operated illegally in both the USA and the UK, in the first case by offering unregulated securities in the US without authorisation from the SEC, and in the second by offering financial promotions in the UK without authorisation from the FCA.

UCG Trust’s website, ucgtrust.com, is currently down. Archive.org last recorded the website as up and running in April 2018, but it currently shows a domain parking page. A couple of phone numbers formerly provided on the website were answered by answering machines that appeared to have nothing to do with UCG.

UCG’s website formerly stated that it was a “trading name of UCG Marketplace Ltd”, registered in Delaware. At the time I found no company of that name registered in the State of Delaware, but there is a shell company of that exact name registered in the UK, owned by a Daniel Fraser John O’Donoghue. I was unable to confirm if this company is related. The UK company is currently subject to a strike-off from Companies House after failing to file up-to-date details of the company’s ownership, and will be dissolved on 9 December if no objection is received.

Daniel Fraser John O’Donoghue is listed as director of a dizzying 112 UK registered companies, many of them with names suggesting some sort of investment business (Etara Investment Ltd, Bitcoin Innovations (UK) Ltd, United Capital Corporation Limited and so on and so forth). Whether super serial entrepreneur O’Donoghue even exists, who knows.

Unless something changes shortly, I’m calling this as another unregulated company disappearing with investors’ money.

Shortly before it disappeared, UCG Trust’s website claimed that $143 million had been raised from investors, although I would take that with the same large pinch of salt wherewith investors should have taken its claims to have “eliminated all the risk to investors”.

Magna Global (aka MIX1 and MIX2) – we review their unregulated bonds paying 11.7% – 12% a year

November 22, 2018November 16, 2018 ~ Phoenix ~ 91 Comments

Magna Group (aka Magna Asset Management) is offering unregulated bonds paying interest over 12 months or 18 months as follows:

12 months: Pays interest of 12% over the one-year term, rolled up and paid out at the end of the year. Issued by MIX2 Limited.
18 months: Pays interest of 18% over an eighteen month term, rolled up and paid out at the end of the 18 months, which is equivalent to 11.7% annual interest on an Compound Annual Growth Rate basis. Issued by Magna Investments X Ltd, aka MIX1.

Investment in the 12 month MIX2 loans has a minimum investment of £30,000, while investment in the 18 month MIX1 loans has a minimum investment of £10,000.

The lower minimum investment is the only concrete reason I can think of for investing in the longer term loans, given that they pay the same rate of simple interest despite having a longer term (and therefore having higher liquidity and default risk).

While Magna Group’s literature has been approved by an FCA-authorised company (Equity for Growth (Securities) Limited), the investment itself is unregulated, being a loan note issued by a non-FCA-authorised company.

Who are Magna Group?

MIX2 Limited is wholly owned by CEO Chris Madelin, while MIX1 is owned 50/50 by Chris Madelin and Acquisitions Director Oliver Mason.

Magna Asset Management, which appears to be the central corporate entity of the Magna Group (which includes at least 20 UK registered companies), is owned in equal proportions by Madelin, Mason and Development Director Jonathan Beach.

directors — L to R: Chris Madelin, Oliver Mason and Jonathan Beach.

Magna Asset Management was incorporated in February 2015 and its last accounts, made up to 31 December 2017, show net assets of £1,790. This predominantly comprised £6.1 million of debtors (amounts owed to Magna Asset Management by other Magna companies) minus £6.1 million of creditors (predominantly loans from investors, as well as some amounts owed to other Magna companies). These accounts were unaudited due to Magna Asset Management’s small size, and did not include a profit and loss account.

The two bond issuing companies, MIX1 and MIX2, were incorporated in June and July 2018 respectively and are too young to have filed accounts.

How safe is the investment?

These are unregulated investments into a micro-cap property business and if Magna Group is unable to make sufficient returns from its property investments, or for any other reason runs out of money to service its bonds, it may default on payments of interest or capital.

Magna Group’s literature is commendably clear in this regard, making it clear from the cover page onwards that investors’ capital is at risk.

Asset backed loans

Investors have a charge over any property purchased by MIX1 / MIX2 or its subsidiaries and a floating charge over all the assets of MIX1 / MIX2 or its subsidiaries.

Investors should not assume that as the loan notes are to be backed by property, there is no risk of losing money.

Investors in asset-backed loans have been known to lose 100% of their money (e.g. Providence Bonds and Secured Energy Bonds) 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).

We are not in any sense implying that the same will happen to investors in Magna Group, 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 undertake professional due diligence to ensure that in the event of a default, the assets of MIX1 and MIX2 are valuable and liquid enough to raise sufficient money to compensate all investors.

Investors should note that they are investing in two newly formed companies, Magna Investments X Limited and/or MIX2 Limited, and the assets and property projects of the wider Magna Group are irrelevant as far as the charges over the assets of MIX1 and MIX2 are concerned.

According to a factsheet for the MIX1 investment (the 18 month bond), available to download from the Magna Group website, investors in MIX1 have a “share charge” over the shares in Magna Asset Management Limited held by Chris Madelin and Oliver Mason.

It is not clear whether this is the case for the MIX2 investment (the 12 month bond). There is no mention of a share charge in the MIX2 factsheet, but there is a passing mention of share charges in the MIX2 Information Memorandum under Risk Factors. However no specifics are provided anywhere else in the MIX2 document.

Investors will need to clear this up as part of their due diligence. In addition, bearing in mind that Magna Asset Management Limited has net assets of £1,790 according to its last published accounts, if they are planning to rely on the security offered by the charge over 66% of its share capital, they should undertake professional due diligence to verify that the assets of Magna Asset Management Limited would be valuable and liquid enough to compensate investors.

Should I invest in Magna Group?

As with any corporate bond, 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 offering yields of up to 12% a year should be considered very high risk. As an individual, illiquid security with a risk of total and permanent loss, Magna Group’s bonds 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?

The investment may be suitable for high net worth and sophisticated investors who will already be well aware of all of the above risks, are looking to invest a small part of their assets in corporate lending, have done sufficient due diligence, and feel that the return on offer (12% over one year or 11.7%pa over 18 months) is sufficient for the risks involved in lending to a new startup company.

If you are looking for a “secure” investment, you should not invest in corporate loans with a risk of 100% loss.

Tyram Lakes (via Rothgen Capital) – we review their unregulated bonds paying 8% per year

November 20, 2018November 6, 2018 ~ Phoenix ~ 43 Comments

Rothgen is offering unregulated bonds paying 8% a year to raise funds for the Tyram Lakes eco lodge.

The bonds are currently being advertised via TV adverts on the Sky Property channel.

Note that while the Rothgen group of companies includes an FCA-regulated company authorised to provide advice (Connected Financial Services Ltd which trades as Rothgen Capital), the investment itself is unregulated, being a corporate loan note issued by Rothgen Management Limited (an unregulated company).

According to Rothgen, “Rothgen Capital Ltd is the sole exclusive marketing agent for the Tyram Lakes Bond and approaches by other companies should not be entertained. Please inform us if you are approached by any third party that is purporting to promote the Bond.”

In 2017 Tyram Lakes bonds were being promoted to investors by Century 21. Century 21 is still listed as a “Key Development Partner” in the literature (under “Real Estate/Property Marketing & Promotional Services), so it is slightly odd that Rothgen says investors should no longer entertain approaches from them in such strong terms.

Who is Tyram Lakes?

The issuer of this bond is Rothgen Management Limited. The company was incorporated in April 2014 and in its latest accounts (May 2017) reported net assets of £1.1 million. These accounts were unaudited and did not include a profit and loss account due to Rothgen’s small size.

Alkush Choudhury is the 100% owner of Rothgen Management. She is described as an “executive director” on the Tyram Lakes website. The other directors listed on Companies House are Daulton Byfield (Managing Director) and Mike Smith (Director).

The Tyram Lakes website lists Alexander Pearce as Chief Executive Officer, but oddly given his position, he is not listed as a director on Companies House.

Another oddity of Tyram Lakes’ management structure is that the terms “Chief Executive Officer” and “Managing Director” usually refer to the same person, the person running the company. It is therefore not clear who is actually the Number One at the company: CEO (but non-director) Alexander Pearce, Managing Director Daulton Byfield or Executive Director and 100% shareholder Alkush Choudhury.

How safe is the investment?

This is an unregulated corporate loan and if Rothgen Management Limited defaults on your loan you risk losing up to 100% of your money.

Investors’ money will be used to build eco lodges followed by a hotel in the Doncaster area. The strategy for repaying investors is not specified in the literature, but it presumably involves selling the development on completion or raising further money from investors.

If Rothgen Management Limited fails to complete the project or raise enough money from it to repay investors, there is a risk that they may default on payment of interest and capital to investors.

This particular bond is described as asset-backed. Investors have a fixed and floating charge against the assets of Rothgen Management Limited.

Investors should note that this does not include the land on which the eco-lodge is to be built. The brochure reveals on page 26 that the landowner of Tyram Lakes is Rothgen Limited, a separate company. Rothgen Management Limited (the bond issuer) has a 21-year lease agreement with Rothgen Limited, the landowner. A 21-year lease over land is worth considerably less than the freehold on the land itself.

Rothgen Management Limited aims to raise £25 million from investors. The current net book value of Rothgen Management Limited’s assets, according to the brochure and its accounts with Companies House, is £2,050,000.

This illustrates that it is essential that if investors plan to rely on this security, they should undertake professional due diligence to ensure that in the event of a default, Rothgen Management Limited’s assets would be sufficient to meet all creditors’ claims, including those of the administrator.

We are not in any sense implying that the same will happen to investors in Rothgen Management and Tyram Lakes, only illustrating the risk that is inherent in any loan note even when it is a secured loan.

The investment literature contains a whole page devoted to the low interest rate environment in the UK and the low interest rates offered by cash ISAs and other savings accounts. This is a totally irrelevant comparison because this is a capital-at-risk investment.

No high net worth or sophisticated investor would compare the returns from corporate lending to the returns on FSCS-protected cash accounts – they would compare it with the returns on offer from other capital-at-risk investments such as regulated diversified stockmarket funds. It is disappointing that companies offering unregulated bonds continue to include misleading comparisons such as this in their literature.

Should I invest in Tyram Lakes / Rothgen Management?

Any investment offering interest of 8% a year should be considered high risk. As an individual, illiquid security with a risk of total and permanent loss, the Tyram Lakes bond is 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 of diversified investments that the loss of 100% of my investment in Tyram Lakes would not damage me financially?
Have I conducted due diligence to ensure the asset-backed security can be relied on?

The investment may be suitable for high net worth and sophisticated investors who will already be well aware of all of the above risks, are looking to invest a small part of their assets in corporate lending, have done sufficient due diligence, and feel that the return on offer (8% over three years) is sufficient for the risks involved in lending to a small company.

If you are looking for a secure investment, you should not invest in corporate loans with a risk of 100% loss.

MJS Capital shell company (companies?) put into administration

November 16, 2018November 15, 2018 ~ Phoenix ~ Leave a comment

A shell company connected to troubled unregulated bond issuer MJS Capital has gone into administration.

MJSC Marketing Limited (it will not be lost on our readers that MJSC has the same initials as MJS Capital) was incorporated in October 2017 by Nigel Anthony Peck.

Nigel Peck was listed in MJS Capital’s investment literature as a member of the Advisory Board. His exact role was not specified.

On 25 October MJSC Marketing Limited was put into administration. Paul Cooper and Asher Miller of David Rubin & Partners have been appointed as administrators.

What role MJSC Marketing played in MJS Capital’s dealings is not clear. The company did not even survive long enough to file annual accounts. Even its SIC code is “82990 – Other business support service activities not elsewhere classified“.

Another business with a remarkably similar name has gone into liquidation. MJSC Investments Limited was incorporated in May 2015 as MJSC Retail Limited (a couple of months after the main MJS / Colarb company) and changed its name to MJSC Investments Limited on November 2016.

In July 2018, one of MJSC Investments’ creditors (logistics giant Kuehne + Nagel) petitioned the courts to liquidate the company, which was granted. Nobody turned up in court to represent MJSC Investments Limited. The company is currently in liquidation, with Dentons UK and Middle East LLP appointed as liquidators.

Despite the remarkable coincidence of the name, I have been unable to verify that MJSC Investments Limited is an MJS Capital company. The director and 90% shareholder at time of incorporation was Frenchman Philippe Vladimir Davso. In July 2016 Davso’ shareholding and directorship was transferred to Israeli Eliyahou Arama, who was 19 at the time.

I have been unable to connect either Davso or thrusting young business tyro Arama to MJS Capital in any other way, which is why I can’t verify that MJSC Investments Limited is an MJS Capital company. Still, quite a coincidence that it should share the MJSC badge and go bust at around the same time as MJSC Marketing.

MJSC Investments Limited’s last accounts (made up to May 2016) contain virtually no information other than it owed £1,543 to short term creditors.

For the sake of balance, I will emphasise that MJS Capital’s main business entity – i.e. Colarb Capital plc (MJS Capital plc before October 2018) remains an actively trading company according to Companies House.

MJS Capital disclosed in its 2017 accounts that it has used a shell company, MJS Cap Ltd, to “support banking requirements” , in reference to its “issues relating to freezing of accounts or difficulties opening bank accounts”. Neither MJSC Marketing nor MJSC Investments were mentioned in these accounts as far as I can see.

Both MJSC Investments and MJSC Marketing have been added to our watchlist and we’ll cover it here if the administrators release any further details.

Essex and London Properties shut down by the High Court for operating a Ponzi scheme

November 14, 2018November 5, 2018 ~ Phoenix ~ 9 Comments

Essex and London Properties Limited, which apparently offered 8% per year for three year bonds and 12% for one year bonds (I have been unable to verify whether this was correct or whether the Financial Times has swapped the two coupons around, which would make more sense), has been liquidated by the High Court.

The Insolvency Service has characterised the company as a Ponzi scheme, on the basis that when the records of its escrow payment providers were analysed, they indicated that new investors’ money was being used to pay existing investors’ interest payments, instead of interest payments coming from property returns.

Essex and London Properties claimed to buy properties to sell them on for a profit or rent out. In reality, only one house was ever purchased, using less than 1% of investors’ money. A statement of affairs filed by the administrator in January 2018 states that this house worth £155,000 and cash of £350,000 was all that was left of £20 million invested. (The statement of affairs listed creditors of £11 million; the recent FT article says £20 million.)

The FT article says that ELP incorporated in 2005. While technically correct, the scheme in reality began in 2015. The people behind ELP acquired an existing dormant company called Merlin Radio Limited and renamed it to Essex and London Properties Limited, giving the company a false appearance of longevity to anyone who looked at the Companies House record and did not probe deeply enough.

According to the Insolvency Service, Essex Police are investigating a number of suspects involved in the scheme.

How do I get my money back from Essex and London Properties?

If you invested in Essex and London Properties, you should be on your guard against anyone contacting you and telling you that they can recover your money. It is highly likely that you will be targeted by fraud recovery fraud, and the FT reports that investors have already been targeted. If anyone asks you to pay “legal fees” or “liquidation fees” to release your money it is almost certainly a scam.

The figures identified by the administrator in January 2018 suggest that investors have lost nearly all or all of their money, unless they were advised to invest by an FCA-regulated adviser, or held the investment in a SIPP without regulated advice.

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.