London Capital and Finance bondholders to be bailed out by new £120m taxpayer scheme

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Nearly four months after the original announcement, the Treasury has finally announced that any London Capital and Finance investors who have not been refunded via the Financial Services Compensation Scheme will be bailed out almost in full by the taxpayer, up to a £68,000 cap. Around 8,800 people are expected to be eligible.

In a sop to fans of moral hazard, the new scheme will refund up to 80% of the original investment, minus any interest payments or dividends from the administration. Having faced near total losses for over two years, it is unlikely investors under the cap will be too upset by a 20% haircut. A smaller number of investors who invested significantly more than the cap could be facing very large losses: we are meant to assume that they were too rich for us to empathise with, but there could easily be first-time investors of middling or modest means who invested pension lump sums or inheritances.

The FCA will also make “ex gratia” payments to some investors who contacted it before the collapse, some of whom were told by FCA call centre staff that their investments in LCF were covered by the FSCS. More with-it call centre staff who attempted to protect investors and raise concerns were slapped down by FCA management.

On top of the FSCS bill which in February stood at £56.3 million, this would bring the total bill paid by the general public over the collapse of London Capital and Finance to £176 million, plus any remaining successful FSCS claims, plus the FCA’s “ex gratia” payments.

The conclusion of the saga of LCF compensation confirms a long-standing principle in UK financial regulation: that if a sufficient number of people believe an investment is risk-free, the Government has to spend everyone else’s money to make it so. This principle has previously been applied to Equitable Life, Barlow Clowes, Icelandic banks and defined benefit workplace pensions and others.

Back in July 2019 I noted that an ad-hoc compensation scheme funded by taxpayers was one of the options on the table to resolve the issue of LCF investors let down by the FCA’s incompetence, as detailed in the Gloster Report. One and a half years later the Treasury has finally plumped for that option.

Whether the Government manages to recoup any compensation from the Four Horsemen of LCF remains to be seen. Thirteen individuals were sued by LCF’s administrators last year, alleging that ten of those individuals “misappropriated” investors’ money (now taxpayers’ money). No further developments in that case have been reported as yet.

The £26 million funneled from LCF investors (now taxpayers) to Facebook and Google for their misleading ads will almost certainly never recovered, as there was no rule against Facebook and Google taking £26 million to promote high risk unregulated investment schemes to the public – and still isn’t.

With the compensation saga coming to an end, the next big question is whether the Government will do anything to stop the next wave of unregulated investments taking in a similiarly large sum, which eventually falls on the taxpayer again.

The early signs are not promising. As part of the announcement on compensation, a consultation on bringing mini-bonds under FCA regulation has also been announced.

What this is supposed to achieve I’m not sure, bearing in mind that the FCA was happy to give London Capital and Finance all the authorisation they needed despite

  • London Capital and Finance’s consistent history of misselling their high risk investments to the public
  • LCF disclosing to the FCA that 25% of investors’ money was paid out as commission
  • Numerous other red flags being visible in LCF’s accounts

– all failings identified by the Gloster Report. Also, if it becomes difficult to issue minibonds to the public, all that will achieve is to make the unscrupulous advertise other unregulated investment structures instead – such as the “invest in our hotel room with an 8% assured return” structure, which continues to flourish unabated – or an entirely new structure.

It is depressingly revealing that the Treasury has not announced a consultation into bringing UK investment regulation out of the 1920s and requiring all investment securities offered to the public to be registered with the FCA, which is how it has worked in the USA for decades.

Without comprehensive legislation, an equivalent of the US’s 1946 Howey Test and proactive regulation, the UK will always be fighting the last war.

11 thoughts on “London Capital and Finance bondholders to be bailed out by new £120m taxpayer scheme

  1. The sad thing about all this – although I am happy for those LC&F victims that get some compensation but not necessarily 100% compensation (according to John Glen at the treasury select committee 21 April, this will cover 97% of investors) – is it seems to have given “false hope” to others. Over in the Blackmore facebook group (the open one not the closed one) many there are of the opinion they too could/will get same compensation from the treasury. However, as Glen was quick not to open a hornets nest and point out this isn’t setting any precedent the government will back every high risk investment ….

    There are many victims however who don’t see how they differ from the LC&F victims and think it’s unfair ….

    I don’t think we have seen the last chapter in all this if I’m honest ….

  2. Will this also include westway holdings investors

    As it stands we can assume not. LCF was different from Westway Holdings in two ways: 1) LCF was authorised by the FCA, which put a greater responsibility on the FCA to pay attention to what it was doing, 2) LCF took in much more money, which meant it fell over the “if enough people believe an investment is risk-free, the Government has to spend everyone else’s money to make it so” threshold. The same applies to Blackmore Bonds on both counts.

  3. Absoutely right, and the Transparency Task Force is campaigning for exactly that ( amongst other things).Financial Regulation in the UK is at its lowest point ever and is currently a waste of taxpayers money in itself.

  4. “…The same applies to Blackmore Bonds on both counts.”

    When was Blackmore Bonds plc authorised by the FCA?

  5. A few simple facts which don’t seem to have been highlighted on the reason why Bondholders invested. into LCF……..It was the FCA status.

    This was in the published promotions:-

    (1)In bold red words at the top it states:- FCA authorised & regulated, which turned out to be totally false for the products it was selling

    (2) The promotion was approved by Sentient Capital London Limited (an FCA authorised & regulated company) but they had a major conflict of interest with an employee, who was also LCF’s compliance officer !!

    (3) In that promotion it was stated the company Solicitor Buss Murton Llp was established over 300 years ago, which was completely false, as it was established in the 1980’s!! Buss Murton llp was struck off in 2015 as a result of a 2.9 million debt & did not even exist at the time of the promotion !!

    (4) The claims of the security Trustee’s 120 years management team experience is again completely false, as it was a dormant company created in November 2015 by one of the directors of most of the borrowing or connected companies !! The company accountants Oliver Clive & co, also acting as LCF’s secretary who’s owner also owns CAA Registrars who is LCF’s secretary,so He must have knowingly agreed to the company advertising these false claims !!

    As a result of all this The FCA is responsible for my loss of investments If I had I known it was not regulated for what it was selling I would never have risked my life savings !!

    The prominent FCA status made it look like I was investing in a legitimate company. Having never had any problems or losses in nearly 40 years of investing !! We relied on these false facts being true & that was the ultimate reason I invested,because of the implied security 75% LTV According to LCF/Surge sales persons this was actually no more than 45-55%LTV.

    In this unique case The Treasury has an obligation to pay us back our investments in full as a result of utter incompetence in the FCA by approving a criminal group who shamelessly stole from investors.

    That is why LCF is different.This group of persons is linked to multi million global fraud & the FCA actually approved them to operate.

    There is even a warning as far back as 2014 on Anglo wealth, which LCF director Martin Binks was also a director on, along with Asset Life …….that should have been a major cause for concern !!

    And of course there was of course Andy Thomson’s illegal control of the Global Security Trustee for seven months, via Oracle Limited based in Malta

    LCF did not actually fail, the FCA stopped it before it did, but unfortunately only after 11,600 bondholders had invested …….by that time 2 1/2 years too late !!

    This post hasn’t even scratched the surface of this criminal group !!

  6. @Ian I don’t disagree that the FCA were imcompetent. However the website banner clearly said “Investing in bonds means your capital is at risk”. The document you signed to say you had read says “THESE BONDS ARE NOT REGULATED BY THE FCA AND ARE NOT PROTECTED UNDER THE FINANCIAL SERVICES COMPENSATION SCHEME.”
    Much of the other info listed above was publicly available if you’d done due diligence including viewing the warnings on the Money Saving Expert forums that total loss of capital was possible. Some investors even posted there that they were ignoring the warnings and taking the risk yet are now complaining they’re going to lose money. Some people clearly were duped into buying these but others were fully aware of what they were doing. Handing over hundreds of thousands of pounds to an unknown company should require a pretty high amount of validation before going ahead.

  7. With hindsight totally agree I should have done due diligence on LCF Remember this was Five years ago. At the time I thought that as an FCA regulated company they would have carried out that due diligence & never suspected LCF was run by a bunch fraudsters, selling unregulated products.

    Genuine losses I can accept, but this was totally different………TOTAL FRAUD !!

    I didn’t sign any document stating “THESE BONDS ARE NOT REGULATED BY THE FCA AND ARE NOT PROTECTED UNDER THE FINANCIAL SERVICES COMPENSATION SCHEME.It would have been your capital may be at risk. I was quite aware of LCF not being eligible for the FSCS compensation scheme.

    Also having never experienced any type of fraud before investing in LCF & at the time I was a trusting person.

    It’s a bit of an eye opener multi million global fraud & who actually carries it out !!

    I didn’t see the forum comments at the time either when “invested” in 2016

  8. They will thank their lucky stars they are getting funds returned and most 100%. Still unbelievable to think and theres no way the fca will recover this money. They can seize assets if there are any but these guys are going to be going bankrupt and likely prison if they cant repay.

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