We review Global Edge’s bonds paying up to 21% per year

January 2, 2020January 2, 2020 ~ Phoenix ~ 5 Comments

Global Edge (a trading name of UK Innovative TI Ltd) offers unregulated bonds paying interest for a three year term as follows:

12.5%pa for investments between £2k and £25k
16.5%pa between £25k and £50k
18.5%pa between £50k and £75k
21%pa above £75k

Funds raised are to be used to gamble on various sports. Global Edge claims to have “advanced algorithmic technology” which identifies when bookmakers have priced their odds incorrectly and a platform which automatically bets on markets where it has an edge.

Global Edge promotions claim their system is

non-correlated to the economy, which means you can earn consistent profits regardless of Brexit and other economic conditions.

Global Edge is currently reportedly being promoted via the New Scientist magazine’s mailing list.

Global Edge’s adverts are approved for regulatory purposes by WDFS Limited.

Who are Global Edge?

Global Edge director Iain Stamp — Global Edge founder Iain Stamp

Global Edge is headed by serial entrepreneur Iain Stamp. According to Stamp’s bio in the brochure:

As an INTJ, Iain is one of the rarest and most strategically capable personality types. The INTJ form just two per cent of the population.

INTJ refers to a Myers-Briggs personality type (Introverted, iNtuitive, Thinking, Judging). This is the first time I can recall that someone has used the results of a multiple choice personality test as a selling point to investors. Maybe the next time I’m presenting my credentials I should mention that I’m in the two per cent of the population that has webbed feet.

Not mentioned in Stamp’s CV is his firm Integrity, which sold Geared Traded Endowment Policies and went into liquidation in 2009 causing up to £80 million in losses.

Integrity was fined £350,000 by the Financial Services Authority (waived to maximise recoveries for investors) and was censured for providing misleading information.

Also not mentioned is PPF Capital Source, a peer-to-peer investment scheme controlled by Stamp which according to the Times in October 2017 was subject to complaints in the UK and Ireland over €5 million of missing money. Stamp stated that the complainants had been the victim of fraud by a third party.

UK Innovative TI Ltd fails to disclose who is in ultimate control via Companies House, having submitted a “persons with significant control statement” in January 2019 that says “The company has identified a registrable person in relation to the company but all the required particulars of that person have not been confirmed”.

Back in 2016 UKITI submitted an annual return which confirmed that its shares had been transferred to a “Galaxy Funding Foundation”.

Who they? According to a High Court document from the PPF Capital Source affair,

The issued shares of the company are wholly owned by the Galaxy Funding Foundation, which is registered in Belize as what is called a Belize International Foundation, described in the material before me as a hybrid between a trust and a company.

According to Mr. Stamp he is not a shareholder in or beneficiary of that entity and has no control over it. […] He has produced the registration documents and foundation 31 charter of the Foundation but these documents as produced contain significant unexplained redactions. The governing body of the Foundation is stated to be its Foundation Council but the name of the sole member of that Council has been redacted. The Foundation has a protector who appears to fulfil broadly the same role as a typical protector of a settlement but that name has also been redacted. The charter does confirm that Mr. Stamp was the founder of the Foundation, that he cannot be a member of its governing body and that there are no named beneficiaries, the purpose of the Foundation being stated as the advancement of education to promote, sustain and support the physical education of young people and life skills training.

So, in short, investors are lending money to a company set up in 2009 by Iain and Katrina Stamp, which is owned by a foundation in Belize also set up by Iain Stamp, but the people in ultimate control of Global Edge are not disclosed. But they definitely aren’t Iain Stamp. All we know about them is that they are interested in “the physical education of young people”.

Investors should think very carefully before investing with a company that does not disclose full details of the people in ultimate control.

How safe is the investment?

These investments are corporate loans and if Global Edge defaults you risk losing up to 100% of your money.

Global Edge’s claim that its gambling investment is “non-correlated to the economy” is true in a sense, but means that like any loan to a small company, the investment can easily generate a 100% loss even as the world economy goes up.

Global Edge’s brochure claims that in live testing from February 2018 to February 2019, the algorithm turned £20,000 into £5,277,694, which Global Edge says is a “4,012% return”. I make that a 26,288% return, but seriously, who’s counting. Global Edge does correctly calculate that this amounts to a 59% per month compounded growth rate.

Had Global Edge successfully sustained its return of 59% per month indefinitely, it would own every penny of the world’s $300 trillion wealth in less than 3 years of betting on sport with its initial £20,000. That’s the magic of compounding.

Thankfully the directors do not insult investors’ intelligence by pretending they can sustain growth rates of 59% per month. Apparently there are “liquidity constraints on some of the markets that the platform trades on”.

Instead they say “However, the directors expect the platform to make between 5% to 10% ROI per month on its bet turnover. Expected compound growth rates in the range of 15% to 25% per month are realistic.”

Which raises several questions, the most obvious of which is: how stingy are Global Edge to have an algorithm which generates returns of 80% to 213% a year (with 435% to 1,355% “realistic”), a rate of return which, if it’s as sustainable as they claim, will make its owners billionaires within years, and yet only share up to 21% per year with the people fronting the money?

In the “Investor Comforts” section of its website, Global Edge states

Following comprehensive due diligence, a global private equity investment group valued Global Edge at £20,000,000 the private equity investor has committed to provide £3,000,000 of investment. [sic]

Note that Global Edge waffling on about unnamed private equity firms is not a substitute for investor due diligence.

That aside, why are Global Edge bothering with trying to raise £10 million from random investors via adverts in the New Scientist, when they can use the £3 million invested by the unnamed private equity firm, and for that matter the £5 million they made in beta, and turn it into £10 million in a matter of months?

Despite putting up £3 million, the private equity firm is clearly sceptical about Global Edge’s claims if they value an algorithm allegedly capable of generating 5% – 25% annual returns as worth only £20 million.

Asset-backed lending

Also listed under “Investor comforts” is that “Bonds are backed with a 1st Legal Charge over the Company’s assets”.

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

What Global Edge’s algorithm will be worth if it has defaulted on its bond will be extremely uncertain, given that if Global Edge runs out of money to pay investors, its predicted returns will have proved overoptimistic.

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

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

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

Should I invest in Global Edge?

This blog does not give financial advice. The following are statements of publicly available facts or widely accepted investment principles, not a personalised recommendation. Investors should consult a regulated independent financial adviser if they are in any doubt.

As with any individual loan note to a small unlisted 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.

As an individual, illiquid security with a risk of total and permanent loss, Global Edge’s loan notes are much higher risk than a mainstream diversified stockmarket fund, despite its claim to offer “consistent profits regardless of economic conditions”.

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?

There is no betting algorithm that consistently and scalably generates returns of 21% per year after costs, let alone the 5-25% a month that Global Edge claim. If Global Edge had one they would be quietly turning their own £5 million into a billion-pound fortune, and not dilute their returns by soliciting investment from others.

The reality is that investing in a bond paying 21% per year is a pure gamble – and one where someone else holds all the cards. Isn’t betting supposed to be fun?

Do not invest unless you are prepared to lose all your money.

Store First assets sold by Official Receiver to Toby Whittaker’s wife

December 31, 2019December 30, 2019 ~ Phoenix ~ 33 Comments

According to the Lancashire Telegraph, the Official Receiver has sold the freehold, associated assets and goodwill of Store First‘s 15 storage centres to Store First Freeholds Limited.

The assets of the service company, SFM Services, have been transferred to Pay Store Limited.

Both Store First Freeholds Limited and Pay Store Limited are wholly owned by Jennifer Whittaker, reportedly the wife of Store First CEO Toby Whittaker.

According to the Official Receiver, the sale of Store First’s assets to companies owned by Toby Whittaker’s wife “represented the best outcome for creditors”. The consideration has not been disclosed.

The deal does not appear to mean any recovery for Store First investors – instead, they get the opportunity to surrender their pod (and the ongoing liability for business rates) with Mrs Whittaker’s company covering their cost.

The deal would also see requests by investors to surrender their pods accepted, with Pay Store covering any of the associated costs but no payments being issued to the former owners.

If you ever needed a clearer illustration that when an unregulated investment stops paying out and winding up orders start flying, you should write it off and expect nothing, this is it.

In this case nothing is apparently “the best outcome for creditors”. A sub-optimal outcome would be for unfortunate store pod owners to get less than nothing by holding a pod that they were unable to generate income from but left them liable for business rates.

A winding up order against Store First was originally launched by the Business Secretary back in July 2017. Store First reached an out-of-court settlement in May 2019.

An investigation into the cause of the collapse of the Store First investment opportunity continues, according to the Insolvency Service. According to the Government’s lawyer in the winding up case, over £200m was invested in Store First from UK pension funds and elsewhere.

Milton Park Capital (aka FSE Global Solutions) shut down by court order

December 26, 2019December 23, 2019 ~ Phoenix ~ Leave a comment

A company which formerly offered bonds paying up to 16.8% per year has been shut down in the High Court.

A creditor petitioned the High Court in June 2019 and his petition was granted in October. FRP Advisory as been appointed as liquidators.

We reviewed Milton Park Capital’s bonds in December 2018. We concluded that the bonds were inherently high risk, and made even more so by the fact that the company used stock photos to conceal the identity of its directors.

In June 2019 the FCA issued a scam warning against the company.

If any further details emerge from the liquidation we’ll cover them here.

How do I get my money back from Milton Park Capital?

At the risk of prejudging the liquidation, the likelihood of recovery is minimal.

Milton Park Capital investors are now likely to be on a “suckers list” and will be targeted by – and fall for – similar scams in the future.

If anyone contacts you claiming they can recover your money, it is almost certain to be another scam. They will ask you for “legal fees” or similar which you will never see again.

If you were advised to invest in Milton Park Capital by an FCA-authorised adviser or invested via a regulated SIPP company, you may have a claim against them which would be covered by the Financial Services Compensation Scheme. Unfortunately both would appear unlikely to apply.

FCA chief Andrew Bailey kicked upstairs

December 23, 2019December 21, 2019 ~ Phoenix ~ 4 Comments

With the triumphant swagger of a county athlete who sees that he’s the 1-10 favourite for tomorrow’s race, drinks five pints of scrumpy in the pub the night before, and eventually staggers over the line an inch ahead of a 12-year-old farmer’s son before vomiting into the trophy, FCA CEO Andrew Bailey has shrugged off the ongoing scandal of the FCA’s failure to deal with unregulated investments and secured the appointment of Governor of the Bank of England.

Bailey must have been sweating a little as a succession of headlines about financial scandals old and new (minibonds, mortgage prisoners, vulture “restructuring” divisions) – with the FCA’s conscious inaction as a constant theme – rolled through the presses as the Government deliberated its decision. But in the end, Bailey’s “safe pair of hands” reputation won the day.

While no-one is accusing Bailey of being solely responsible for the billion-pound-sum of investors’ money lost in UK unregulated investments – we are in a cycle which started in 2014-15, before his appointment – it was nonetheless Bailey who was in charge as London Capital & Finance used its newly-acquired “CAT standard” of FCA authorisation to grow into a £230m Ponzi scheme, despite many IFAs and members of the public warning the FCA of the dangers.

It was also Andrew Bailey in charge when the FCA shut down Park First, and rather than appointing an independent receiver to act in the interests of investors, allowed Park First eighteen months to oversee the winding up of its own illegal collective scheme. Park First’s handpicked administrators subsequently told investors that their funds could not be returned in full and that £115 million owed to Park First creditors by Park First group companies would have to be written off.

Over in the regulated sector, it was under Andrew Bailey that the FCA allowed Neil Woodford to openly flout the requirement for open-ended funds to hold no more than 10% in unlisted securities, leading to a re-run of Arch Cru.

It is under Andrew Bailey that the FCA has pathetically squeaked about the “regulatory perimeter” instead of using its existing and well-defined powers to enforce the requirement that unregulated investments are only promoted to high net worth and sophisticated investors. And that unregulated schemes which rely on these exemptions can prove that their investors qualify as such.

Andrew Bailey is the architect of the FCA’s policy of masterly inactivity and the predictable and consistent results of this policy are his baby.

Bailey’s main job as Bank of England governor is now, from a retail investor perspective, to justify continuing to hold interest rates at virtually nil; i.e. to allow borrowers to continue spending savers’ money cheaply to avoid scaring the economic horses. I.e. to continue perpetuating the conditions that have driven UK retail investors into the arms of P2P, minibonds, unauthorised collective schemes and every other Tom, Dick and Harry trumpeting “8% secured interest”.

Bailey’s appointment has been repeatedly described as a “safe pair of hands” in the business press. Which for a financial regulator is not so much a backhanded compliment as a two-handed Serena Williams piledriver into your face compliment. Especially in a country riven by financial scandal and “McMafia” money laundering.

But having succeeded first Martin “shoot first and ask questions later” Wheatley at the FCA, and now arch-Remoaner Mark Carney at the BOE, Andrew Bailey has carved out a good niche in taking over from people who took the whole “politically independent” thing a bit too seriously.

A new FCA head will be appointed in the new year.

We review Vala Lending plc – “low volatility” unregulated bonds paying up to 7.9% per year

December 19, 2019December 19, 2019 ~ Phoenix ~ 1 Comment

Vala Secured Lending plc offers IFISA bonds and unregulated bonds paying interest as follows:

4.62% for a one year term
6.25% per year for a three year term
7.9% per year for a five year term

Funds raised are to be used to invest in small and medium enterprises (SMEs).

At time of writing Vala’s website has been offline for some days or weeks. As far as we’re aware however the company is still trading. This review has been based on Vala’s last available brochure as at November 2019.

Who are Vala?

Vala Lending plc was incorporated in July 2019. Vala is 92% owned by founder Jasper Smith via the holding company Vala Capital Ltd (the other 8% being owned by Vala Capital director James Faulkner).

Jasper Smith is described as an entrepreneur who has invested in a succession of ventures including Static2358, Electra Entertainment, Optimistic Entertainment Plc, PlayJam, PlayStack and Arksen.

The holding company Vala Capital also runs a UK Challenger Fund (launched in 2017 and now closed to new investment) and a Vala EIS Portfolio. Little detail about the track record of the UK Challenger Fund is publicly available and the EIS Portfolio, like Vala Secured Bonds plc, launched only this year.

Vala’s brochure is upfront about the fact that Vala Secured Bonds plc intends to invest investors’ money in projects which Vala Capital has previously invested in. Under the risk warnings this is correctly identified as a potential conflict of interest; Vala states “we have in place procedures and policies to identify, manage and mitigate any conflicts of interest that arise”.

How safe is the investment?

Vala’s brochure and website makes clear that the investment is capital-at-risk and not covered by the Financial Services Compensation Scheme.

Its brochure also claims several times that its bonds are a “low volatility” investment and, more specifically, offer “lower levels of volatility than investments in the stock market”.

“Volatility” is conventionally used as a synonym for “risk” in the investment industry (specifically investment risk). Higher-risk investments generally go up and down in value to a greater extent than lower-risk ones.

This only holds if you are comparing two investments traded on liquid markets, which allow their volatility to be compared.

Vala bonds are not traded on any liquid stockmarket.

The fact that Vala bonds are not traded on a stockmarket does not make them low risk – entirely the opposite. The fact that Vala bonds do not go up and down on a daily basis is not an advantage; it means they are subject to greater liquidity risk than a bond traded on the stockmarket issued by a national government or large company.

The fact that Vala uses the term “low volatility” rather than “low risk” does not make the implication any less misleading. Especially when they are described as offering “higher interest than can be found on the high street, with lower levels of volatility than investments in the stock market”.

Comparing the interest rate offered by an unregulated bond with a risk of 100% loss with the interest offered by FSCS-protected high street deposit accounts is also misleading.

Asset-backed lending

Vala’s bonds are described as secured bonds as they offer “security over the assets of the bond issuer, Vala Secured Bonds Plc”.

Secured lending is not risk-free as there is a risk that if the underlying borrower defaults, the security cannot be sold for enough to cover the loan – a point Vala itself makes in its brochure.

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

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

Should I invest in Vala?

As with any individual loan note to an unlisted startup company, this investment is only suitable for sophisticated and/or high net worth investors who have a substantial existing portfolio and are prepared to risk 100% loss of their money.

As an individual, illiquid security with a risk of total and permanent loss, Vala’s loan notes are much higher risk than a mainstream diversified stockmarket fund, despite its claim to offer “lower volatility than the stockmarket”.

Before investing investors should ask themselves:

How would I feel if the investment defaulted and I lost 100% of my money?
Do I have a sufficiently large portfolio that the loss of 100% of my investment would not damage me financially?
Have I conducted due diligence to ensure the asset-backed security can be relied on?

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

Harewoods administrator revises expected losses from 84% to 93%

December 17, 2019December 15, 2019 ~ Phoenix ~ 1 Comment

The administrators of collapsed unregulated property investment scheme Harewood Associates have released their latest update.

Harewood Associates raised £32m by advertising bonds and preference shares directly to investors. The scheme collapsed into administration in June.

In their initial report, the administrators wrote off £36 million of the £40 million which Harewood Associates lent to linked companies, including £17 million loaned to Harewood Venture Capital and £19 million loaned to Sherwood Homes.

The administrators have now also written off a further £1.2 million from the “Equiscale” investment and £1 million owned by a company called Southworth Construction (owned by a James Cuniff).

The administrators have successfully raised £721,000 (after fees and costs to date), mostly representing a £310,000 property in Shropshire and £500,000 recovered from Lansdowne Investment Partnership (LIP), another Kiely-owned company.

Harewood Associates' David and Peter Kiely — Harewood directors Peter and David Kiely

LIP owes Harewoods a total of £2.8 million and has agreed to pay £500k upfront with the remaining £2.3 million payable in instalments to October 2020, with security taken over several properties owned by the Kiely-owned partnership.

Harewood director Peter Kiely also repaid a £14,600 director’s loan account. Which is nice.

The status of claims by investors in Harewood preference shares are being reviewed by a barrister. Preference shareholders are normally viewed as owners rather than creditors.

However much the administrators manage to recover from what little remains, it is clear that, with 93% losses now being the “best case”, Harewoods is a virtual write-off.

The difference between Harewood’s claims that its bonds were “safe and secure” and “secured by way of debentures on UK residential developments” could not be starker. The only thing backing Harewood’s bonds were loans to other Harewood companies that have been mostly written off.

No action has been taken by the FCA or any other enforcement body against Harewood for illegally and misleadingly promoting its bonds directly to investors that is in the public domain.

Bond Review is 2 today

December 15, 2019 ~ Phoenix ~ 3 Comments

Today marks the second anniversary of Bond Review’s first ever article, which happened to be a review of the now sadly notorious London Capital & Finance.

So far Bond Review’s two years have seen:

90 reviews of high-risk unregulated investments promoted to the public
190 further articles bringing you news on the progress of these investments (or lack of it)
8 attempts at legal intimidation
Plus a further 2 attempts to remove Bond Review from Google search results by making defamation claims to Google (without making any attempt to contact us directly)
0 court proceedings started
1 fake DMCA takedown
2 offers to buy the domain (and all its content) for an aggregate of £10,000 (to host a site reviewing James Bond films? sure guys)

On the industry side, 2019 saw a spate of collapses in the unregulated investment sector, starting with the high-profile failure of London Capital & Finance.

In 2020 we’ll see what effect, if any, the FCA’s recent ban on minibonds marketing to the general public will have.

The FCA has already confirmed that it expects some existing minibond schemes to collapse as a result of the ban (exactly who is unknown and unknowable). The outlook for minibond schemes in 2020 reminds me of the tagline for The Texas Chainsaw Massacre: “Who will survive and what will be left of them?”

Arguably more important than the effect on existing schemes is whether the ban actually has any effect on the amount of unsophisticated investors’ money going into unsuitable ultra-high-risk investments.

As regular readers will know I am deeply dubious about this. Even before the FCA ban, many companies were paying and will continue to pay lip-service to the idea that all their investors are high-net-worth or sophisticated. And minibonds are only one particular structure. The ban will not affect other types of unregulated schemes, including the ever-popular “invest in our collective property scheme with a fixed yield of 8% per year” which the FCA continues to largely ignore.

The need for consumers to be able easily access the facts about the risks of investing in unregulated investment schemes – as easily as these investments can be promoted to them via Google searches for “best interest rates” is as strong as ever.

Whatever the unregulated investment market dreams up over the next year, if it’s unregulated or quasi-unregulated (e.g. IFISAs investing in a single unregulated company), and promoted to the public, we’ll be there.

Bond Review is now entirely ad-free and funded by donations. If you regularly enjoy or at least appreciate our coverage, please consider a voluntary subscription or one-off donation.

As ever, thank you to those who have donated already. The knowledge that somebody values what I’m doing is as important than the money towards the hosting costs.

What you may have missed in November and December

(A selection of the more in-depth news articles since the last roundup)

Did the FCA withdraw scam warning after legal threats?

Astute Capital publishes accounts, scrubs critical posts from Internet

FCA officials shit on the floor, as well as the bed

Signature Living continues to struggle with repayments, libels owner’s own brother, reports him for fraud

Park First told Russian investors that they’d repaid buyback investors

Carlauren collapse shows it’s not just investors who suffer

FCA acknowledges that minibond marketing ban may result in shortage of new money to pay off existing investors with

December 12, 2019December 10, 2019 ~ Phoenix ~ 3 Comments

Following its announcement of a 12-month marketing ban on minibonds being marketed to the general public, the FCA has confirmed that it is well aware that this could lead to existing minibond investors losing their money.

In a 46-page document outlining the ban, more specifically outlining how the ban complies with UK anti-discrimination law, the FCA stated:

There may be indirect positive or negative effects on people with protected characteristics as they may be (i) existing investors in speculative illiquid securitiesor (ii) prospective investors. The former may experience harm if market disruption from our measures exacerbates poor performance of existing products and the financial position of issuers that are already struggling, especially if an issuer isreliant on being able to raise further capital from retail investors with new issues and this becomes more difficult.

(For those not au fait with UK anti-discrimination law, “people with protected characteristics” means people who belong to an ethnic group, people d’un certain age, people with disabilities, etc. As a regulatory body the FCA is required to show that it has thought about them before it takes action.)

Credit where credit’s due: The FCA is of course entirely right to acknowledge that the marketing ban may inhibit mini bond firms from sourcing new investment.

But if they were previously sourcing investment from investors that they did not know where sophisticated or high net worth – to whom the new ban does not apply – this should have been stopped long ago.

If an investment is reliant on new investment to stay afloat, then it is doomed to eventual failure. The only question is when it collapses and how much is lost.

If an investment has relied on nothing but new investment to stay afloat, and never had any source of external revenue sufficient to pay off its investors after all other costs, it is a Ponzi scheme.

Either way, the longer it goes on for, the more liabilities it accumulates.

Imagine I raised £10 million from investors promising to pay them 8% for 3 years, and I have no source of EBITDA to pay them their 8%. In order to pay them off it’s not enough to raise £12.4 million from a new load of investors. The new investors will want 9% per year for 3 years (I already tapped out the people willing to invest in my obscure company for 8%) so now I need to raise £15.7 million from the next load of investors to pay them off. And so on.

Liabilities increase exponentially – even before we consider additional investment on top of that needed to pay off existing investors.

The longer a doomed scheme is allowed to run on for, the more liabilities it accumulates, and the more damage it does when it collapses.

Whenever an unregulated scheme collapses, it is pretty common to see its organisers claiming “everything would have been fine if the regulator hadn’t shut us down”.

This is invariably bollocks, and a variant of victim-blaming. It constitutes an admission that the scheme relied on new investment to stay afloat. Which means it was doomed anyway. All the regulator did was limit the damage.

When unregulated investments are accumulating liabilities with no realistic plans to ever pay them off, prompt and decisive action is required by the regulator to limit the damage.

But I guess the FCA’s marketing ban is the next best thing.

Carlauren collapse shows it’s not just investors who suffer

December 10, 2019November 29, 2019 ~ Phoenix ~ 5 Comments

With a few exceptions, investors in collapsed unregulated investment schemes generally find sympathy in short supply.

The media will occasionally print the hard-luck story of a someone who invested their entire pension lump sum, or an injury compensation payment, but the news cycle usually moves swiftly on.

And the general public’s opinion of people who invest too much money in collapsed unregulated investments is often that they were some combination of greedy (even though the idea that all collapsed schemes were “too good to be true” is a total myth), naive, or too tight to consult a regulated financial adviser.

This is not a view shared by this blog; anyone who gets the impression that we lack empathy for the position of investors in failed investments has not understood why Bond Review exists.

Those who parrot thought-terminating clichés like “a fool and his money are soon parted” might pause for a change to consider the plight of elderly residents in Carlauren’s care holmes.

In June, as Sean Murray’s empire built on promises to pay investors 10% a year collapsed around his ears, elderly and vulnerable residents at Tyndale House were told they had a month to find alternative accommodation.

As if this wasn’t distressing enough, on 2 July, the same day Carlauren COO Andrew Jamieson was confronted by unpaid staff, the residents were told this deadline had been accelerated to 24 hours. According to Bond Review reader cpnorfolk:

Social Services had to find emergency accommodation for the residents. My sister managed to get my mother into the care home she was due to transfer to. They were able to fit her in a week early, but it was utter pandemonium on the day and very distressing for all.

Another reader, Jps, says:

Due to non-payment of staff, the residents were put at risk. These risks were presented to senior management prior to closure yet they choose to ignore them. Residents had just 4 hours to find somewhere else to live. Staff continued to work really hard with the help of social services to ensure that this was done with as much dignity as possible. However no-one can compensate for the distress and heartbreak this caused those elderly residents and staff members.

According to ITV News, residents of sheltered housing owned by Carlauren were left without on-site support as a knock-on effect of the closure of Tyndale House. Carlauren said at the time they “have been working hard to ensure they receive the care and support required”.

The fact that the collapse of Carlauren’s unregulated investment scheme left a number of elderly care home residents as collateral damage is more than an unfortunate accident.

The purpose of the financial system is to move money from where it is to where it is needed.

The purpose of financial regulation is to ensure that it does so as efficiently as possible, with a minimum of waste. When this system goes wrong, people’s money is not used to bring economic benefit, but the opposite.

If, hypothetically, I take £5 million off a bunch of investors claiming I’m going to pay them 8% per year for investing in property development, and use £1 million to pay some architects and builders to build the skeletons of a few buildings, knowing it has virtually no chance of ever seeing completion because the scheme will run out of money long before, it is not just the investors’ £5 million which has been lost.

It is also a waste of the architects’ and builders’ time which could have been spent building something that actually had a chance of seeing the light of day.

Economists talk of “the multiplier effect”, which means that when somebody spends money to buy stuff, whoever they buy it from pays their workers and themselves, who buy more stuff, and so on. Economic activity generates more economic activity.

Unfortunately the multiplier effect also applies to economic damage.

The failure of duff investments leaves not just investors with empty pockets but abandoned building sites, wasted resources and in this case, distressed elderly residents.

Had Carlauren not been able to raise money directly from retail investors on promises of 10% per year, it is highly unlikely that it would have been able to purchase Tyndale House and other care homes. Institutional investors were unlikely to hand over money because a guy fresh off the back of the failure of a scheme involving the sale of distressed properties in Detroit had decided to try his hand at looking after the elderly.

The complacent idea that the collapse of unregulated investment schemes doesn’t matter because it only affects “fools and their money”, which has allowed the Government to leave UK securities law stuck in the 1920s, needs to be re-examined urgently.

A billion pounds is at risk of loss in unregulated investment schemes that solicited investment from the public and entered administration in 2019. This is not just a loss to the investors but to the UK economy as well.

Anyone home?

Park First told Russian investors that they’d repaid buyback investors

December 5, 2019December 2, 2019 ~ Phoenix

Reader Sally Jones has drawn my attention to some eye-opening posts over the past year from collapsed unregulated car park investment scheme Park First’s Russian Instagram account.

All quotes below have been machine translated from the original Russian.

In December 2017 the Financial Conduct Authority shut down Park First’s original incarnation, which promised “guaranteed” returns of 8% in the first two years followed by returns of 10% and 12%, on the grounds that it was an unauthorised collective investment scheme.

Park First was however allowed to continue in operation, having restructured as a “lifetime leaseback” arrangement offering fixed returns of only 2% a year plus a variable dividend.

A dividend is a payment to investors out of company profits. Dividends cannot be paid if there are no profits.

valentines — Wondering what to get the Russian woman who has everything for Valentine’s Day? Have you considered a Glasgow car parking space? Me neither.

After the shutdown, Park First continued to use its Russian Instagram account to promote the scheme to Russian-speaking investors. Parkfirst.ru served up a series of posts featuring seminars, characteristically jolly promoter Lola Chinieva, and eye-catching meme-type images.

Park First continued to project total returns of 7-10% per year in its promotions, despite the inherently unpredictable nature of dividends.

The yield of 7-10% per annum in pounds sterling consists of:
? fixed rental income 2% per year
? dividends from the operation of parking spaces. Dividends are calculated at the end of the year and are divided among investors in proportion to the number of parking spaces owned.

On average, the total annual income is 7-10% in pounds.

On 11 March 2019 Park First’s Instagram published an “official response” to an unspecified Bond Review post, probably my April 2018 article covering Group First’s red-ink-splattered accounts for the 2017 accounting year.

Nothing says “secure 7-10%pa returns” like a drunk tramp standing in a paddling pool in front of a run-down council house.

The machine translation isn’t very helpful but the gist of Park First’s response was that “referring to the financial statements of one year 2017, without trying to figure out what figures are reflected in it, is not quite correct”. Park First attempted to persuade investors that they should not worry about its net liabilities as “the income of future periods are not indicated”.

What stands out is this statement:

Existing investors were offered a choice: switch to a new interaction scheme or sell parking lots to the company, having fully returned their money.
?
The company fulfilled its obligations to investors who left in full.
?
Investors who choose to stay already receive rental income and dividends.

(Original Russian: ??????????? ?????????? ??? ????????? ?????: ??????? ?? ????? ????? ?????????????? ??? ??????? ???????? ??????????? ?????, ????????? ?????? ???? ??????.
?
????????????? ????? ????????? ??????????? ???????? ????????? ? ?????? ??????.
?
?????????, ????????? ????????, ??? ???????? ??????? ????? ? ?????????.)

PLEASE TO INVEST NEW MONEY OR GOTH JOKER VILL BURY YOU

Following Park First collapsing into insolvency, we now know that Park First’s claim that “the company fulfilled its obligations to investors who left in full” is not accurate.

If Park First are attempting to use a definition of “fulfilling its obligations” that doesn’t mean “giving investors their money back”, it’s unlikely anyone else reading their announcement would have read it that way.

In addition, it’s not clear how Park First managed to pay dividends when it has never reported a profit and it went into insolvency a year and a half after its forced restructuring by the FCA.

Another Instagram post from December 6 2018 makes it clear that Park First’s idea of what constituted a “dividend” differed dramatically from both the general understanding of the word and UK company law.

Until December 20, the promotion is valid
?
Customers who purchase more than 2 parking lots ?? can save 30% on the cost ?!
?
What does this discount consist of?
? 10% discount on the initial cost
? payment of dividends of the 1st and 2nd year 10% paid immediately
?
Thus, the client acquires parking spaces at a discount of 30% and begins to receive income from the third year according to the formula 2% fixed + dividends.

You cannot pay someone two years’ worth of 10% dividends in advance. Dividends must be paid out of company profits and you can’t pay someone a 10% dividend when you haven’t generated the profit yet.

Not that knowing that is of much use to Russian Park First investors now, who are now stuck waiting for the outcome of the administration along with all the other investors.