FRE Plc – An Investor’s Story

This article has been written by a bondholder in FRE Plc . The opinions expressed in this article are those of the investor. She has taken it upon herself to form a Facebook Group for FRE bondholders which can be accessed via this LINK.

In October 1992 I lost my 9 year old, diabetic son to a sudden, devastating hypoglycaemic attack, in the bathtub of our home. My 11 year old daughter found him floating face down in the bathtub,  I knew half of me had died and my girl had lost the only other family she has in this country, apart from me. 

In September 2013, she and her partner had their first baby girl, beautiful and perfect in every way, and 2 years later another daughter just as precious. I knew that I would spend the rest of my life trying to ensure that their lives would be happy, safe and free of the fear and worries I had experienced as a single mother. Tragically it would not prove that simple. Just 2 years later their eldest  was diagnosed with Type 1 Diabetes. Suddenly my daughter was stepping into my shoes: a poor single mother, living in a tower block full of junkies and alcoholics, working full-time for a low income. She split up with her partner and I was the only other family she had.

So, when my mother died and I inherited some money, I redeemed the small mortgage on the home I share with my partner, and committed the remainder to an investment in FRE Plc to secure my daughter and the children’s future, while helping to safeguard their planet’s climate.  I am passionate about supporting ethical issues and investing in what I believed was an ethical and safe investment. I searched the Internet, using Ecosia – the search engine that plants trees – and at last found a company that fitted the bill: ethical, environmentally beneficial, offering a good return to borrow money to develop onshore wind power in the UK and reduce reliance on Fossil Fuels!  I researched the company’s background and looked at their filings on Companies House. I was no expert but I tried to make sure what I was buying was as safe as I could make it. Yes, there is always an element of risk, but wind power – they explained – was subsidised by the Feed in Tariff, and so guaranteed by the UK Government. Besides – they added – even if anything should go wrong and the Company should go into administration, Bondholders have “first charge” and so would get their investment back from the sale of the wind turbine sites before any other creditors.

The charming saleswoman assured me that, as FRE was busy re-powering some of its sites, installing more powerful turbines where permits allowed it, these would increase in value, over the following years, generating more revenue than ever and securing the long term future of Bondholders’ investment. It was the answer to my prayers! I was told that, as someone they considered to be “a high net worth individual” – by dint of the sum I had inherited – I would be accepted on Phase 4 investment. As the money came into my possession, between 2018 and 2019, I retired, because my health had taken a dip, and I elected to dedicate my time and energy to childcare, to free my daughter from expensive after-school fees.

It was then that I paid FRE Plc. well in excess of £100,000, feeling that at last I could sleep easy at night, knowing that soon I could help her buy a home, so she would no longer have to pay rent, or feel afraid in her own home.  For a while the interest came in, punctually, until May this year (2021), when my hopes were shattered by an email that was like a bolt out of the blue. After a lengthy explanation it announced that:

It is with great disappointment we must inform you that, in light of these developments in our sale process, it is now clear that there will be, in all likelihood, a deficiency in our asset value when compared to our Bondholder obligations regardless of the outcome of this exercise. It is this impact we write to you today to seek your own approval on the way forward.

In the interim we have halted payment of interest on your Bonds in order to ensure we are not preferring any creditors under legal advice. This interest will continue to accrue and form part of any future claim you have in the portfolio.

The money my 92 year old mother had so carefully invested into her property, that she had held on to, even when she could have done with extra help and care, was now evaporating, leaving behind a fraction of the proceeds from her sacrifices and my well-intentioned investments. Meanwhile, those who had given their assurances disappeared. Both the salesperson and her manager had gone leaving behind the founder, a man with 31 Directorships under his belt – who had proved inept at best and possibly fraudulent at worst.

I have hardly slept a single night, since then and curse myself for being so naive…  “If it looks too good to be true, it probably is!”  the words echo in my mind, and I feel devastated, hating myself for my naïveté.

Meanwhile men like these will be free to go on to destroy other lives like my girls’ and mine. They will not suffer because their wealth is beyond our reach and they will not even lose any sleep!

SAFE OR SCAM COMMENT – FRE PLC is currently attempting to force through a vote on restructuring. This is similar to other bond investments which have also recently claimed that investors have supported restructuring proposals after opaque, undemocratic and highly questionable voting processes. Our legal advisers have stated that they believe all bondholder restructuring outcomes are unlikely to be bind many classes of bondholders.

Why now ? Because the UK Government’s moratorium on the filing of winding up petitions ends on 30th September 2021. There is a rush to force through changes to Bond Instruments before bondholders can take recovery action against the companies. The FRE PLC vote is due to take place on 28th September 2021.

Bondreview in the Future

Brev has now stepped away from Bondreview and we wish him/her all the best for the future.

The site will now be managed by two independent volunteer moderators who support the Safe Or Scam effort to combat scams, but it will remain largely as it is now i.e a free information site allowing the public to comment on articles related to a range of investments.

All historical articles published by Brev will remain in place. The ‘Comments’ facility, which was disabled when Brev retired, will be reinstated to allow visitors to give their point of view. Please give us a week or so to transfer all the gubbings of the site (technical term) to our hosting provider. We will update users when that has completed and the site is fully operational once more.

The site name will change to reflect the fact that investment scams have moved on. Bonds are less prevalent nowadays since their promotion and sale is now captured under FCA regulations. It is not so easy for dodgy investments to use corporate bonds as an investment option. The new Bondreview will cover a wider range of scams and will seek to educate readers on the different scams in the market to raise awareness.

We intend to introduce a new facility where we will publish articles written by members of the public. There are investors who have undertaken their own research into the scams in which they invested and we will be happy to publish their findings. Please note that the articles would need to be backed by supporting evidence. We can’t just allow people to say “That guy Toby Forrest is scamming people”. If anyone would like to start the ball rolling with an article please contact us.

If any reader comes across an interesting article related to investment scams which they feel deserves wider publicity please send us a link and we’ll aim to publish it.

Now that “investigating investments” has become a FCA-regulated activity under recent legislation we would expect more investigation companies to install pop-up boxes requiring visitors to confirm their status by clicking a button to access content. The new Bondreview site will take those regulations into account in order to ensure compliance.

Comments now closed

Slightly later than initially announced in my last post “Goodbye”, all articles have now been closed to comments.

I can continue to be contacted via the Contact link at the top of each page or via Twitter.

Thanks to all readers for their contributions.

Pardus uses accounting date trick to delay filing accounts

Pardus bond logo

Pardus Fixed Income Bond Company plc has delayed filing its first set of accounts for a second time in succession.

Pardus’ last accounts were filed as a dormant company. As a PLC, its first accounts as an active company should have been filed nine months after the accounting date of January 2020, under the time limits specified in the Companies Act. That nine months already includes a three month extension granted by the Government due to Covid.

Instead, Pardus used a trick whereby it reduced its accounting period by a single day, which under the letter of the law grants it an extra three months to file its accounts. It has now repeated the trick, giving it another three months until the end of April 2021 (15 months after the last accounting period ended).

Pardus’ associated company, GRMA-Pardus Wealth Limited, is up to date with its accounts. Its last accounts for April 2020 claimed £39m in net assets with £103m in gross assets and £64m in liabilities, but the accounts were unaudited so are worthless for due diligence purposes without further verification. The accounts showed little other information and how much of those liabilities relate to Pardus investors is not clear.

Unregulated “boutique investment house” Meredith Charles, which states that it has “had a direct involvement in financially engineering Pardus Fixed Income Bond” and that it pays “generous commissions” for introducers who sell it, claims on its website that Pardus “significantly outperforms other fixed-rate offerings”.

Due to its inability to file accounts in a timely fashion, it is impossible in reality to verify how well Pardus is performing, or how much money is at stake.

Pardus, run by former bicycle salesman Greg Bryce, offers bonds paying 1% per month / 12% per year (2%pm / 24%pa via some introducers).

Takeaways from the Gloster report into the collapse of London Capital and Finance

London Capital & Finance logo

On Thursday 17th, Dame Elizabeth’s Gloster’s long awaited report into the £237 million collapse of London Capital & Finance was published.

The report is damning and makes very clear that the FCA bears a large part of the blame for LCF accumulating, and losing, as much investor money as it did.

Furthermore, the following is, in the Investigation’s view, self-evident: had some or all of the FCA’s failures in regulation outlined in this Report not occurred, then it is, at the least, possible that the FCA’s actions would have prevented LCF from receiving the volume of investments in its bond programmes which it did. For instance, had possible irregularities by LCF been detected (and their significance appreciated) by the FCA42 sooner than late 2018, then the FCA should, in the Investigation’s view, have intervened (or taken other regulatory action) earlier.

This has been widely covered in the press, along with the apology from Andrew Bailey, who was head of the FCA throughout much of LCF’s lifespan, and was rewarded for its failure by being kicked upstairs to the job of Governor of the Bank of England.

Here are some edited highlights for those who want a bit more detail than the headlines, without reading the full 494 page report. This is not intended to be a full summary of the report (so you’ll have to forgive me for skimming over accounts of high-level supervision discussions at corporate away days, important as they are) but a list of the most interesting / juiciest bits for ordinary investors.

LCF was waving red flags from day 1, but its accountants didn’t notice

Accounting behemoth PriceWaterhouseCoopers told the FCA in November 2017, on being replaced by another firm of auditors, that there were no matters to bring to the FCA’s attention. The fact that LCF was paying 25% commissions and had no investments with a realistic hope of paying sufficient returns to fund 25% commissions and 8% interest to bondholders apparently wasn’t deemed worthy of notice.

A chartered accountant hired to review the historic information submitted by LCF to the FCA found “red flags” and inconsistencies in financial information that could have been spotted as early as 2016. It also found that the information provided to the FCA by LCF continually indicated that LCF could not meet its liabilities without raising further investment.

It noted that LCF had to charge up to 29% annual interest to its underlying borrowers to fund its commission and interest payments, and this made no sense considering LCF claimed to be engaged in secured lending with low loan-to-value ratios – such borrowers would have no need to pay such high interest. [A11]

The FCA told potential investors that LCF was not a fraud, and FSCS protected

An elderly (septuagenarian) investor was told by the FCA that LCF was “unlikely to be operating fraudulently” as it was FCA-authorised. This was not an isolated incident. [A6 4.2 and 6.7]

A call-centre worker who did advise a potential investor to be “very cautious” and report LCF to Action Fraud, having correctly identified the misleading nature of LCF’s promotions, and subsequently raised concerns with the FCA’s Supervision division, was slapped down as “in error”. They were told that there was already an article on the FCA’s intranet to say that they were “already aware of this issue” and that LCF was not in breach. [4.6-4.7]

A limited number of FCA call-handlers incorrectly advised LCF investors that they would be protected by the Financial Services Compensation Scheme. [6.2]

Potential investor: It does sound too good to be true doesn’t it?

FCA call handler: Let’s have a look… So that’s [London Capital and Finance] coming up as authorised and regulated, so that’s absolutely fine. That means if you wanted to invest with them, you’d be protected by up to £50,000 by the Financial Compensation Scheme.

Transcript of call between a potential LCF investor and an FCA call handler. [C12 2.36]

FCA action against LCF was limited to watering down their misleading advertising

The FCA first contacted LCF with concerns over how its bonds were being marketed in January 2016. At the time LCF’s website claimed LCF was “100% protected”. This was amended following the FCA’s intervention.

Despite LCF’s misleading promotions, the FCA took no follow-up action to verify a) that all LCF’s investors qualified as high-net-worth and sophisticated and that it could produce evidence to confirm this, and b) that it was lending investor money to a diverse portfolio of SMEs as it claimed. A cursory investigation would have revealed that neither was true, and led inevitably to LCF being shut down before it caused £237 million in investor losses.

The FCA’s previous intervention into LCF’s misleading financial promotions were not flagged up during LCF’s application for FCA authorisation. [A8 10/5/16]

Further FCA intervention into LCF’s misleading financial promotions took place in September 2016, this time over lack of past performance disclaimers and warnings about the illiquidity of the investment. Again there was no follow-up after LCF mollified the FCA by amending its website. [A8 Sep16]

In January 2017, LCF disclosed to the FCA that it paid 25% commission on funds invested by bondholders. This commission was not disclosed to bondholders. The FCA apparently didn’t see anything alarming about this. [A8 26/1/17]

In October 2016, LCF applied for permission from the FCA to hold client money. In a dim corner of the FCA’s collective mind, a lightbulb went on: “why would a firm dealing with corporate finance want to hold client money?” This led to LCF being subjected to an “Enhanced” risk assessment process (the 2nd most rigorous out of 4 classifications), during which the FCA asked detailed questions of LCF. In June 2017, LCF threw in the towel in its attempt to gain permission to hold client money.

In response, the FCA downgraded LCF to the “Standard” risk channel (the 2nd least rigorous out of 4) and from then on accepted all LCF statements and responses at face value in regard to its application for regulatory permissions, including in relation to the security of its loans. [C9 6.9]

The FCA consistently treated LCF’s unregulated bonds as not its problem

The report finds that, in the multiple times that the LCF crossed FCA desks, it repeatedly failed to examine LCF’s unregulated business or consider the investment scheme holistically (as a whole). [C2]

In the wording of the report, the “FCA’s approach to its regulatory perimeter was unduly limited” and “the FCA did not sufficiently encourage its staff to look outside the Perimeter when dealing with FCA-authorised firms such as LCF”.

The “regulatory perimeter” is internal code for the FCA’s cultural attitude of “if it’s unregulated it’s not our problem”. As per the statutory objectives given to the FCA, unregulated investment schemes promoted to the public very much are the FCA’s problem, and the Financial Services and Markets Act specifically empowers the FCA to act on such schemes, using court action if necessary where its statutory powers are insufficient.

FCA staff members responsible for reviewing LCF’s application for regulatory status had no accountancy qualifications, and training to analyse company accounts was “on-the-job”. (I.e. non-existent; when it comes to authorising financial firms so they can promote themselves directly to the public, doing the job with no training is not training.) [C2 2.6a]

According to a supervisor, there is little training on how to identify financial crime within the FCA’s Supervision division. [C2 2.6b]

LCF partly fell through the net because responsibility for its regulation had been transferred from the Office of Fair Trading (which formerly regulated consumer credit) to the FCA. 50,000 such firms were subject to a “limited strategy”. As a result, from 2014 to early 2019, LCF was subject to no proactive supervision by the FCA. [C2 3.5]

The FCA failed to see anything untoward about the fact that LCF was generating no revenue from the regulatory activities it had applied for permission to do. (This was, of course, because LCF applied for FCA authorisation purely to use it as a “seal of approval”, and to allow it to access the ISA market.) [C2 3.2]

The FCA treated LCF’s repeated breaches of financial promotion rules as separate cases, rather than considering whether these repeated breaches could indicate poor systems and controls or even misconduct. [C2 3.7b]

A number of members of the public contacted the FCA identified correctly

  • that LCF’s literature was misleading
  • that LCF’s published accounts raised questions over its financial viability, contradicted LCF’s claims to have loaned money to numerous SMEs,
  • that LCF had conflicts of interest between itself and connected companies

Whenever these reports from the public were escalated, they continually foundered against the FCA’s “it’s unregulated so it’s not our problem” regulatory perimeter.

An internal FCA report from 2013 identified that there was a risk of minibonds such as LCF’s slipping through the cracks. “In addition, if they [are] not sold on an advised basis, it seems that it would not be a sector team issue. This is a risk as there is a possibility that this issue is overlooked as each sector might consider it beyond the scope of their remit.” [Translation: nobody’s been given the job of looking at minibonds so every FCA team will say “more than my job’s worth”.]

The report also noted the increasing amount of money that was going into minibonds, and that misselling of minibonds via lack of risk warnings was endemic. It is unclear whether this report was ever acted on by or even reached senior FCA management. [C7 2.2]

There is no evidence that the FCA took any steps to check whether LCF’s bonds were sold only to high-net-worth and sophisticated investors. [C7 2.6]

FCA senior bureaucrats shirk responsibility

In its response to the Investigation, the FCA claimed that the Investigation was unfairly using the benefit of hindsight. [C1 10.3b]

As the Investigation notes, this is of course false, as per its accountant’s report which showed that there was more than sufficient cause for further investigation and intervention as early as 2016.

The FCA also claimed that it would have taken a forensic accountant to spot the red flags in LCF’s financial information. [C9 6.21]

As the Investigation notes, this is also patently incorrect. Plenty of lay members of the public managed to spot the issues in what little financial information LCF released, including the lack of evidence for its claim to have loaned out hundreds of millions to SMEs with asset security. Many took their concerns to the FCA.

The FCA ignored red flags in LCF’s provided financial information, ignored its own interventions into LCF’s misleading advertising, and has then had the nerve to claim nobody could have seen it coming at the time. It’s a bit like running your car over someone and then claiming “well it’s easy to say I should have seen them now they’re in the rear view mirror”.

The FCA claimed “the draft report had not adequately recognised that the FCA must necessarily prioritise and take a risk-based approach”. Or, to translate, “what’s all the fuss about? It’s only a piddly £237 million.” [C1 10.3]

In a paragraph straight out of an episode of Yes Minister, the FCA told the Investigation that it would be wrong to assign responsibility for the failings over the FCA to individuals, on the grounds that a) it might deter people from wanting to be FCA senior bureaucrats, b) that investigations such as these are supposed to focus on institutional failures and not individual ones, c) the very concept of responsibility is ambiguous. [C1 11]

As the Investigation pointed out, this attitude is at odds with the FCA’s own “Statements of Responsibility” and “Management Responsibilities Map”, implemented in 2016 after the Treasury recommended that the FCA should apply the same framework to itself that it applies to the senior management of banks.

For all the failings in the report, the most glaring paragraph to me is the one where it was claimed to the FCA that the concept of “responsibility” is some kind of ambiguous, philosophical concept, ignoring its own Responsibilities Map and the principles it (somehow) expects the UK finance industry to follow.

And where exactly did this come from? A footnote to the report reveals it came from the submission to the Investigation made by erstwhile head of the FCA, current head of the Bank of England, Andrew Bailey. It came from the top.

It appears to be lost on FCA senior management that responsibility and accountability is what they pay you the big bucks for. For many people it is what they pay you minimum wage for (ask any carer).

The FCA’s 2018 intervention into LCF was delayed by fears of being met with a hail of bullets

The FCA’s belated intervention in late 2018, which resulted in LCF being closed to new investment and immediately collapsing, only happened by chance, as a result of an unrelated search on an external database while looking for something else, which turned up a report which identified significant concerns about LCF. The FCA staff member who stumbled upon the document stated “if the document didn’t mention LCF, it’s entirely possible that nobody would have looked at it”.

The report was circulated by the FCA’s Intelligence Team, ultimately resulting to an unannounced site visit in late 2018. [C13 7.12f]

The site visit was initially due to take place on 21-22 November, but was delayed for three weeks because the FCA team responsible felt there was a risk of being met with armed resistance, and stated they would not proceed without police support. The local police force refused to attend as they concluded the risk of LCF meeting FCA bureaucrats with a volley of gunfire was insignificant. Consequently the site visit eventually took place on 10 December. An FCA team member described the delay as “frustrating”. [C13 7.12f]

An FCA team making an unannounced site visit to a Ponzi scheme, yesterday.

The FCA failed to consider taking action to freeze the accounts of LCF, and companies and individuals connected to it, prior to its December 2018 site visit. [C2 3.23e]


Dame Gloster makes a number of sensible recommendations as to how the FCA should reduce the chance of similar scandals happening in the future, and limit the damage when it does. These include better training for FCA call handlers, more effort to consider the whole of a regulated firm’s business when supervising it, more effort by senior management to identify emerging risks, etc etc.

What Dame Gloster does not address, most likely due to limitations placed on her by the Government which commissioned the report, is how we can expect the FCA to follow such recommendations.

When you consider:

  • the lamely defensive response of the FCA to the Investigation, which suggests that despite a change in leadership, the FCA has been more concerned about loss of face than using the Investigation to identify ways in which it can do better
  • the repeated and systematic way in which the FCA contrived reasons to file reports and screaming red flags about LCF in the circular filing cabinet under the desk
  • an environment where members of the Supervision division receive no training in financial crime, and where FCA call centre staff were so poorly coached that they actively endorsed LCF to potential investors

…we have a clear picture of an organisation that is so infested by the cultural attitude of “if it’s unregulated it’s not our problem” that I fail to see how anyone can be confident the FCA will follow the Gloster recommendations, no matter how many mea culpas the FCA and Bailey give.

If the Government had replaced Andrew Bailey with an outsider with a reputation for a pro-active and activist approach, we might have grounds for optimism that change could come from there. But they went with a lifelong mandarin in Nikhil Rathi, so we’ll have to hope he has hidden depths.

Change needs to come from the top as part of a full overhaul of the UK’s 80-years-out-of-date securities laws, and it can’t come soon enough.