Is it time for a “ScamSmart” leaflet for first-time investors?

With the taxpayer still reeling from the £170m+ bill that has fallen on them from the London Capital and Finance scandal, is it time to start issuing a “ScamSmart” leaflet to first-time investors who’ve just come into large lump sums?

During the last wave of “pension liberation” scams in the early 2010s, hundreds of millions of pounds were lost by investors who transferred their pensions to fraudsters who promised fabulous returns and “loopholes” that would allow the investor to release their money earlier and in larger quantities than the rules allowed.

Although pension fraud remains rife, the scale of the problem was dampened by in a number of ways:

  • HMRC no longer allowing anyone to set up a pension scheme if they sent in two tokens from a breakfast cereal packet
  • George Osborne’s “pension freedoms”, which dramatically reduced the appeal of “pension liberation”
  • “ScamSmart” leaflets were issued to anyone who might be considering a transfer, with a distinctive scorpion cover and clear warnings about what a scam might look like.

If people making a decision on what to do with a large pension fund should be given a leaflet to try and stop them doing something really foolish with it, could the same be done for people who’ve received a large non-pension sum of money into their accounts?

A recurring theme in the fallout of London Capital and Finance was the stories of people who had received a large sum of money, larger than they had ever handled before in their life; typically inheritance, pension commencement lump sums, or downsizing proceeds, and invested the lot in LCF. Often having thought they had done the right thing by checking it was an FCA-regulated firm. It is easy to say they should have sought independent regulated financial advice, especially as they should have. But you don’t know what you don’t know.

It should not be too impractical to draw up rules for solicitors, banks and pension companies that state that if a client is to be paid a sum of money larger than £100,000, and that the company handling the money

  • is not aware that the client intends to immediately use the money [e.g. buying another house with it]
  • and does not have evidence on file that the money is a relatively modest part of the client’s free assets, say 25% or less

…then a one or two page leaflet should be issued before releasing the money warning them of how easy it is to lose a large sum of money as a first-time investor. The leaflet could run along the following lines:

  1. Don’t use social media or Google to look for investments.
  2. Consider talking to a regulated, independent financial adviser on how to use the money.
  3. A large sum of money kept in cash will lose value to inflation over time. Mainstream investments go up and down but should only lose money if they are cashed in during a fall, or not properly diversified, or use gearing.
  4. Don’t use social media or Google to look for investments.
  5. Be suspicious of any investment that promises returns that seem too good to be true. Beware any “cash” or “guaranteed” account that pays even slightly more than normal bank accounts. Beware any investment that is not diversified across the world’s major stockmarkets.
  6. Don’t use social media or Google to look for investments.

I’m normally the first person to scoff at anyone who suggests that the solution to a problem is to issue a leaflet and tick a box. But I’m not proposing a “ScamSmart” leaflet on the grounds that it will stop scams; just that it might stop a few investors losing their money.

It will also force us to confront the reality that someone who has just received a sum of money larger than they’ve ever handled before is being thrown into a pool of sharks blindfolded. The first step to solving a problem is to admit that we have a problem.

Crisis? What crisis?

Emphasising the need for solutions to the scam crisis that don’t involve Parliament, the Government recently rejected widespread calls to take action against promotion of investment scams by search engines and social media companies.

The Government’s “Online Harms Bill” was originally set to address racism, child abuse and romance scams.

An amendment by MP Stephen Timms was brought forward that would have brought investment scams within the scope of the Bill, including powers to fine Google and other search engines if they failed to tackle investment scams.

The amendment received a broad coalition of support including FCA head Nikhil Rathi, the CEO of advice and asset management giant Quilter, the Financial Services Compensation Scheme (FSCS), TV’s Martin Lewis and the Money and Mental Health Institute.

But despite positive noises being made by the Government, the Queen’s Speech made no mention of financial harm when introducing the bill.

£20 million of investors’ money (which has now become taxpayers’ money) was paid to Google for promoting London Capital and Finance, with another £6 million paid to other marketing platforms. As Google did nothing wrong by accepting money from LCF’s unregulated introducers, it is almost certain that money will ever be recovered by the general public, who were recently presented with the final bill for bailing out LCF almost in full.

The amount of money lost into scams would collapse dramatically overnight if search engines were subject to a fine (or, even better, held liable for investor losses) if they promoted any investment to UK investors that does not have authorisation from the Financial Conduct Authority.

Google would probably say that it is impractical, given the number of ads placed via its system, to vet every single one that mentions investment. However that is exactly what they said for years to justify why YouTube was filled with copyrighted material including virtually every popular film and TV show available to download in full (in 10 minute chunks). When the possibility of being held liable for copyrighted content become imminent, a technological solution was suddenly and magically found.

Given that banks can now be held liable for frauds in which they have done no more than send money to where their customer asked them to send it, it makes little sense to say we can’t expect Google to check whether someone advertising an investment scheme can actually do it legally – a burden no greater than expecting Google not to bring up an advert for your local drug dealer if you type in “cocaine”.

But that is by the by as the Government apparently sees no need. Scam epidemic? What epidemic?

Park First reportedly close to deal with FCA over illegal investment scheme allegations

According to reports in The Times, the FCA is close to a settlement with Park First and owner Toby Whittaker over the £230 million collapse of the scheme.

In late 2017 (not 2016 as the linked article has it), in an uncharacteristic burst of activity, the FCA shut the scheme down, alleging that in its current form it constituted an illegal collective investment scheme. Park First offered a “guaranteed yield” of 8% in the first two years, rising to 10% and 12% thereafter, mirroring the returns on offer from sister scheme Store First (which was Park First with self-storage sheds instead of airport parking spaces).

Investors were given the option of either switching to a different scheme which offered only 2% plus variable dividends, or getting their money back. Unsurprisingly, nearly all investors opted for the latter. By this point Park First no longer had the money. After a desultory attempt to flog the new 2% scheme to Russian investors (who were falsely told that the original investors had been repaid), Park First collapsed into administration.

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

Park First’s Russian Instagram page in March 2019, three months before it collapsed into administration (via Google Translate)

Whittaker has already (apparently) successfully walked away from the collapse of Park First’s sister scheme, Store First. In late 2019 the Official Receiver sold the freehold, associated assets and goodwill of Store First’s storage centres to Toby Whittaker’s wife for an undisclosed sum (which under UK matrimonial law is the same thing as selling them to Toby Whittaker himself). It said in a statement that this represented “the best outcome for creditors”. No returns were reportedly received by Store First investors, although they were given the ability to surrender the pods and their ongoing liability for business rates for free.

Whether Park First investors fare any better in any upcoming settlement remains to be seen. The FCA for its part says

In this complex case we have taken civil enforcement action alleging serious breaches of the Financial Services and Markets Act,’ a spokesperson said.

We are committed to ensuring that those running the firms account for their misconduct, including paying compensation to victims.

Krono Partners update: nothing to update

Krono Partners logo

The administrators of Krono Partners, Smith & Williamson, have filed their latest six-monthly update.

The preceding twelve months brought the revelation that a significant Krono player, Ulrik Debo, had been charged with securities fraud in the USA.

Criminal proceedings by the Securities and Exchange Commission are ongoing.

There is however no update on returns from the “Company Y” loan platform, on which the administrators are pinning their hopes of recoveries.

The director has indicated that any return from this asset is currently remote.

Nor is there any update on the ragbag of other assets held by Krono.

There are no further developments to report on the following assets: Unlisted shares; Other debtors; Bank accounts; Krono Administration Limited; Listed shares; Micro loans; Intellectual property

A breakdown of timecosts shows that in the last six months, a total of 18 human-hours has been spent by Smith and Williamson on the Krono administration, of which the largest item, taking 8 hours, was compiling the six-monthly report.

Fielding investor enquiries accounted for another 3. Compliance and “general review” took up the bulk of the remaining 7.

This backs up the impression that the administrator’s plan is to grab a deckchair and a) wait for the outcome of the US case against Debo (although how it directly affects Krono Partners is as yet unclear, as Krono was not mentioned in the SEC case) and b) continue waiting for “Company Y” to generate some returns.

Blackmore Global under investigation by Isle of Man regulators

Blackmore logo 2019

Blackmore Global, the sister investment scheme to the UK minibond that collapsed with £46 million of potential losses, is being investigated for potentially running an illegal collective investment scheme.

Blackmore Global was established a few years before Blackmore Bonds. It is, on the surface, an unregulated investment scheme consisting of a closed-ended company registered in the Isle of Man.

The BBC revealed in 2018 that a number of UK pension investors had been missold in transferring their pension funds into Blackmore Global, an inherently high risk unregulated investment. The linked article has been suppressed by Google – along with its BBC source – due to legal action by Blackmore.

The articles remain suppressed despite the fact that Blackmore has never proved or even attempted to prove in a court of law that any part of my article is untrue, and the same applies (so far as I am aware) to the BBC’s.

Investors in Blackmore Global were locked in to the fund for 10 years. Blackmore Global was incorporated in September 2013 and the earliest any Blackmore Global investors will be able to cash out of the fund is therefore September 2023.

The current status of investments in Blackmore Global is unknown as it does not publish regular independently audited accounts.

After seven and a half years of operation, the Isle of Man Financial Services Authority has now accused Blackmore Global of running an unregulated investment scheme.

The IOMFSA went public with its accusations because it “considers it is desirable in the public interest to publish the information”.

The IOMFSA’s accusation is based on the following:

8.1 When Blackmore was established it availed of an exemption provided in the Collective Investment Schemes (Definition) Order 2008 (the “Order”). The relevant exemption in the Order was at paragraph 4: “…and no other body corporate other than an open-ended investment company, shall be regarded as constituting a collective investment scheme.

8.4 The Offering Document (and Article 12 of the Articles of Association) provides that Blackmore may only repurchase shares in exceptional circumstances subject to strict criteria:

“12.2 Unless shares are expressed to be redeemable, the Company may only purchase, redeem or otherwise acquire them pursuant to –

(a) an offer to all shareholders which if accepted would leave the relative rights of the Shareholders unaffected and which affords each shareholder a period of not less than 14 days within which to accept the offer; or

(b) an offer to one or more shareholders to which all shareholders have consented in writing; or

(c) an offer to one or more shareholders in respect of which the Directors have passed

a resolution stating that in their opinion the transaction benefits the remaining shareholders and the terms of the offer are fair and reasonable to the company and the remaining shareholders”.

Or to translate from Manks Gaelic:

Neither my sister nor I operate a collective investment scheme. We like them, but we don’t operate them. We’re from the Isle of Man.

Blackmore Global was only able to operate as an unregulated, unlisted investment scheme on the basis it was a closed-ended scheme, meaning that to join an existing investor had to sell you their shares, and to exit you had to find a new investor to sell you their shares. Isle of Man securities law recognises that this is inherently less likely to be flogged to the public than an open-ended company which can generate new shares for any investor who wants to join and extinguish them for any investor who wants to cash out.

It is technically possible for a closed-ended investment company to buy its own shares off the shareholders using cash in the company. Do this often enough, however, and you start to behave like an open-ended fund.

The IOMFSA alleges this is what Blackmore Global was doing.

8.5 The Authority became aware that between March 2015 and May 2019 there had been regular and substantial redemptions made out of Blackmore.

8.6 The Authority does not consider that the number and nature of the redemptions processed and made were exceptional in nature, or that Blackmore was able to evidence that the transactions benefited the remaining shareholders and that the terms of offers were fair and reasonable to the remaining shareholders.

The extent to which these regular and substantial redemptions made out of Blackmore has to do with investors like those featured in the BBC investigation being allowed to cash out prior to the ten-year lock-in period ending is unknown. In part due to its own lack of disclosure.

Also unknown as yet is whether any of these redemptions were made by Blackmore directors or controlling persons.

The IOMFSA is now considering “appropriate next steps”.

“Dishonest” and “manifestly incompetent” Roger Allanson struck off as solicitor after investment scheme collapse

Roger Allanson, owner of the eponymous Allansons LLP unregulated litigation funding investment scheme, has been struck off as a solicitor and ordered to pay the Tribunal’s costs of £103,868.

The scheme claimed to deliver a potential return of 50% in a timeframe of 6-18 months.

Third-party unregulated introducers soliciting investment into the scheme claimed that the investment was covered by the Financial Services Compensation Scheme, thanks to a complex structure involving an insurance broker offering an unauthorised credit default swap and an “After The Event” insurer in Bermuda. Exactly who dreamt up this claim is unclear as it never formed part of Allansons’ own marketing (only their introducers’); while the Tribunal case does centre on misleading claims of “no risk” made in Allansons’ marketing, the FSCS coverage claim is not one of them.

The allegations against Allanson were:

  • That the marketing material used to solicit investment into the scheme was misleading.
  • That the monies invested were “misused”, with either 24% or 4% of each investment retained by Allansons, and a total of £347,000 of payments made either to introducers or Allanson himself that breached the solicitors’ Code of Conduct.
  • That Allanson failed to monitor the mortgage overpayment claims that underpinned the investment scheme.
  • That Allanson sent “inappropriate” emails to an investor who was querying the status of his investment.
  • That Allanson failed to maintain adequate accounting records and client account reconciliations.
  • That Allanson failed to maintain client ledgers for the over 4,000 clients whose cases against their mortgage lenders underpinned the investment scheme.

Checkered history

The investment scheme centred around mortgage borrowers who had supposedly paid too much in interest to their lenders.

Allansons began taking on a handful of claims in December 2016, but the vast majority of cases were taken on in 2018 after the litigation funding scheme ramped up. Of 7,773 cases taken on by Allansons at 31 January 2019, 99.7% were taken on in the preceding 12 months. (The Allansons scheme was reviewed here in January 2018.)

The cases were heavily reliant on a piece of software called “Checker Reports” developed by a man the Solicitors Tribunal refers to politely as “Mr BT”, director of “MAS Limited”. This would almost certainly be Bryan Turner of Mortgage Audit Services Limited, who featured in Allansons investment literature.

“Checker Reports” was put into action in relation to the “Brothers H” (apparently someone at the Tribunal is a Dostoevsky fan), who had defaulted on a number of commercial mortgages with Santander. Before Checker Reports entered the scene, Santander had already conceded an overpayment of c. £29,000 to the Brothers H as a result of a Financial Ombudsman case.

In late 2012, armed with a printout from “Checker Reports”, Roger Allanson demanded Santander refund a further £114,000. Santander refused, stating “the recalculation method to reach this figure is incorrect”. Nonetheless Santander did reduce its claim “a bit further”, settling for the proceeds of the sale of the Brothers H’s property – but clearly not for a £114,000 repayment.

This single case was trumpeted as a “proven track record” in Allansons’ literature. In the Tribunal’s words, the investment literature claimed that the Checker report had been a “silver bullet which had solved Brothers H’s problems”. In reality, the return of £29,000 by Santander was the work of the Financial Ombudsman, not the Checker report, and the claim for a further £114,000 on the basis of the Checker report had been mostly tossed out by Santander. Plus a negotiated agreement not to pursue the Brothers H for money in excess of the property sale proceeds (i.e. money they probably didn’t have).

The Tribunal rejected a submission by Allanson that a single (shaky) case could constitute a “proven track record”.

This was one of a number of points found to be misleading by the Tribunal. Other points found to be misleading in the investment literature included

  • The impression that the investment carried no risk of loss. A FAQ claimed that the only “risks of investing” were “you might not receive a return on your investment… there is ATE insurance in place in the event a case fails.”
  • The impression that investors’ money would be spent only on an expert audit report, with other costs covered by Allansons, whereas in reality investors’ money was funneled to introducers and Allansons itself.
  • A claim that the chances of success had been reckoned at 75%, without mentioning that this was based on legal advice that had been heavily circumscribed and caveated. One of the lawyers who had been used to back the “75%” claim told Allanson that her advice had been mischaracterised and demanded that he remove reference to her practice from the literature.

Misuse of money and 20% commissions

In an email to a much-abused (in every sense) investor called “Mr AL”, Allanson claimed

No commissions, excessive or otherwise have been paid to agents. I do not have any agents.

In reality Allansons was paying commission to a number of introducers, identified only by initials in the Tribunal report.

The Litigation Funding Agreement signed by investors stipulated that funds would be used “specifically to pay for the Checker expert reports and necessary case costs only”. In reality they were used to prop up the law practice (including to pay off the company credit card) and to pay a number of introducers. The Tribunal found that this was a misuse of investor money and contrary to the investor agreement.

Allanson claimed that introducers were due 20% of investor money “payable at case close”. The SRA’s solicitor pointed out that introducers were unlikely to wait until the closure of the legal cases for their money, given they had no oversight or control over those cases. She also pointed out a number of transfers out of the scheme’s bank account to introducers.

£19m invested, not a penny recovered

A total of £19 million was raised from investors in the Allansons’ scheme, and paid out.

Not a penny was recovered from any mortgage lender as a result.

The case against Allansons details a “litany” of failures in progressing the cases, and delays of up to nine months after a potential client had signed an authority before a “letter before action” was sent to the lender.

None of the case files had an individual Counsel’s opinion assessing its merits.

Mortgage lenders who received claims in respect of Allansons clients were left scratching their heads over what the claim was supposed to be about.

The most common cause of delay was that the letter of claim was insufficiently detailed and the lenders were unable to understand what claims were being made, and how those were supported by any calculations.

The Tribunal noted that in the 18 months that the scheme was running, the Respondent did not recover a penny from any lender. He had not issued any claims, nor had he sent any Part 36 offer letters. He had collected from litigation funders, and paid out, over £19m. In not one case had any lender indicated any intention to do other than reject the claims. In not one case had the Respondent provided a detailed exposition to a lender of why there was a good claim and how it was particularised.The letters before action had not been in the proper form, leading to their rejection.

The Tribunal found that up until 2018, Allanson’s strategy had been to overwhelm lenders with a large mass of claims with the threat of charging them £4,000 for a detailed report which didn’t exist. In 2019 the SRA intervened, as Allansons was preparing to change tack by issuing 20 test cases.

Allanson at this point deployed the familiar “everything would have been fine if the regulator hadn’t shut us down” cliché.

The Tribunal was satisfied that in reality, the Allansons scheme collapsed because Allanson was better at raising money from investors than actually using it to fund cases.

The Tribunal was satisfied on the balance of probabilities that the Respondent had failed to adequately manage the progression of the MMP claims and so found the factual basis of Allegation 1.3 proved.

“It’s better to keep your mouth shut and appear stupid than open it and remove all doubt”

Allanson was also sanctioned for “inappropriate” emails sent to the aforementioned Mr AL, who had become concerned about the progress of his investment and started to regularly contact Allanson. Allanson responded by questioning Mr AL’s intelligence and threatening to sue for defamation.

The fact you make wild assumptions to support your personal hostility towards me makes damages for defamation top of the agenda for the meeting yet to come. Mark Twain once said “it’s better to keep your mouth shut and appear stupid than open it and remove all doubt”. I can’t think why that sprang to mind, but curiously it did. Still want to meet?”

Email by Allanson to one of his investors

The Tribunal rejected a claim by Allanson that the email was jocular in nature and an attempt to defuse the situation. It also noted that the allegation of defamation was nonsense as Mr AL’s allegations had only been made to Allanson himself, not to a wider audience.

(Trained solicitors not understanding the basic requirements for a claim of defamation? Whatever next?)

Findings

The Tribunal found:

That Allanson’s systemic failure amounted to manifest incompetence.

The Tribunal considered whetherthe Respondent’s conduct amounted to incompetence that was so clear and obvious as to rise to the level of manifest incompetence. This was not a failure on one or two files but a systemic failure on thousands of files, funded to the tune of over £19m. The failures were basic and repeated, and the Tribunal was satisfied on the balance of probabilities that it clearly amounted to manifest incompetence.

The Tribunal also found that Allanson demonstrated dishonesty in regard to the misleading marketing material and his claims to an investor that no commission had been paid out of their investment.

The various allegations to do with failure to keep adequate accounting records were also found true.

The Tribunal found that Allanson had been motivated by financial gain, contrary to his claims of “a wish to help others”. Which in the context of a £19 million investment scheme which made not a penny in returns is a bit like finding that Casanova had a tendency to think with his wedding tackle.

As a consequence of the Tribunal’s findings, Roger Allanson was struck off as a solicitor and found liable for c. £104,000 in costs.

Allanson pleaded poverty in an attempt to persuade the Tribunal not to apply costs. He claimed that as a result of the Tribunal case he is currently working for a builder at £10 per hour, dependent on his wife, and a self-described “man of straw”.

He also made “a number of personal attacks on the integrity of various individuals involved in the preparation of the case”. The Tribunal paid no attention to his conspiracy theories, dismissing them as “unsubstantiated”.

The Tribunal rejected his plea of poverty, noting that Allanson received “unexplained” funds from his investment scheme and therefore had not proved that he could not afford the costs.

the Tribunal noted that he had received money as a result of the scheme that had not been explained. In the absence of that information the Tribunal could not conclude that the Respondent was unable to pay the costs.

Allansons LLP was put into voluntary liquidation in May 2020. Investors’ money in was reported as a debt and investors’ money out reported as an asset, meaning the liquidator is responsible for recovering any investor funds that can be recovered. (If any.) Progress reports for voluntary liquidations are due annually (unlike administrations where reports are required every six months) so the first should be due soon.

FCA warned by police about Blackmore 45 times before bond collapse

Blackmore logo 2019

A Freedom of Information request made by The Telegraph has revealed that the City of London police warned the Financial Conduct Authority 45 times over the activities of Blackmore Bond starting in 2018.

According to a freedom of information (FOI) request submitted by The Telegraph, the City of London Police, which is the national police lead for fraud, first alerted the FCA to events at mini-bond provider Blackmore in 2018, 18 months before it eventually failed.

It subsequently highlighted problems at the company 44 times prior to its demise in April 2020. The majority of those warnings occurred in February and March of that year.

The FCA was first warned about Blackmore in 2017 by independent consultant and whistleblower Paul Carlier. It eventually stopped Blackmore from taking in new money from the UK in April 2019, having been stung into action by the collapse of London Capital and Finance a few months earlier. Blackmore’s subsequent attempts to attract money from overseas went nowhere.

The regulator has claimed that it did not receive any warnings from the City of London Police until February 2020 (when Blackmore Bonds had already collapsed). Why it did not receive the dozens of earlier warnings is unclear as yet.

The City of London Police’s warnings to the FCA followed a total of 71 reports of “alleged fraud” relating to Blackmore, none of which came from the FCA.

The misplaced / ignored warnings raise a number of important questions which go beyond the usual “why didn’t the FCA do anything“::

  • Who made the original reports to City of London Police and why? It’s unlikely to have been Blackmore Bond investors, as in 2018, Blackmore was making all its interest payments on time.
  • The FOI red flags referred to both “Blackmore” and “Blackmore Global”. Blackmore Global is a controversial Isle of Man unregulated investment scheme, run by the same directors as Blackmore Bonds, which, as reported by the BBC, received the pension funds of a number of UK investors. Blackmore Global does not publish audited accounts or performance reports and investors in the fund have struggled to ascertain what their investment is now worth. Did some or all of the 71 fraud reports submitted to City of London Police relate to the Blackmore Global unregulated offshore fund rather than the Blackmore Bonds minibond scheme?
  • What did City of London Police expect the FCA to do? The reports were always going to bounce off the FCA’s “regulatory perimeter” (i.e. institutional culture of ‘not our problem’) and the most likely organisation to make further enquiries into allegations of fraud was either the City of London Police itself or the Serious Fraud Office.
  • Why were none of the concerns reported to the police and the FCA made public until now? When a high risk unregulated scheme is being promoted to the public, the right of investors to be informed trumps the right of the investment scheme not to have its reputation damaged.

Inevitably, an MP (Gavin Newlands, SNP) has called for Blackmore investors to be bailed out by the general public, on the grounds that the FCA failed them in the same way as LCF investors. The Treasury said that a compensation scheme for Blackmore investors is not being planned.

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

London Capital & Finance logo

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.

Fortress Legal / FLF Litigation goes dark, Companies House moves to strike off

FLF Litigation Services (formerly known as Fortress Legal, Litigate Aid and Robert Dodds Watches), whose bonds were reviewed here in August 2019, has been issued with a strike-off notice by Companies House for failing to file accounts for December 2019 on time.

Unless the strike-off notice is cancelled, e.g. due to an objection from a creditor, in June FLF Litigation Services Limited will be dissolved and all its assets will pass to the Government.

Worryingly for investors, FLF Litigation Services’ failure to file accounts (a criminal offence) appears to be part of a general pulling down of the shutters.

At the time of my review, FLF Litigation Services was majority owned by Andrew Lynch. In July 2020 Lynch resigned as director and passed all the shares in the company back to its original owner, Robert Dodds (he who apparently originally intended to use the company to sell watches). There is now no mention of FLF on Lynch’s LinkedIn profile.

FLF’s website, flflitigationservices.com, has been blanked and now shows just a WordPress login. The phone number listed for FLF on Google has been disconnected.

FLF’s Twitter feed has not been updated since December 2018 when it made a short post saying “Fortress Legal Finance Fund has been Section 21 approved” (meaning that it had found an FCA authorised company to approve its financial promotions, allowing them to be released to the public).

Prior to that post, the Twitter feed mostly consisted of inane motivational tweets and lawyer jokes (some retweeted) including “Lawyers don’t lie, they are creative” and “People do not win people fights. Lawyers do!”

FLF’s December 2018 accounts showed a relatively trivial £130,000 in creditors, with a £110,000 net liabilities deficit. Comments on the original review from worried investors suggest the bonds reviewed by me were in fact issued. How much FLF owes investors now is not clear due to its failure to file accounts.

Serious Fraud Office raids Buy2letcars, alleges “fraudulent scheme”

buy2letcars logo

The Serious Fraud Office announced last week that it is investigating “suspected fraud in relation to the activities of the Raedex Consortium, including the companies Buy2Let Cars, PayGo Cars, Raedex trading as Wheels4Sure and Rent2Own Cars”.

One individual has been arrested and another interviewed. Two residential properties were searched.

The identity of the individual arrested, and why the SFO suspects fraud may have occurred, is yet to be revealed.

Having closed to new investment in February, gone bust in March, and been raided by the Serious Fraud Office in April, Buy2letcars is shaping up to be the most dramatic collapse of an unregulated investment scheme since London Capital and Finance collapsed in 2019.

The speed of developments stands in marked contrast to the 8-year period in which Buy2letcars was allowed to market itself to investors as a “recession inflation and stagnation proof” investment (2012 website copy).

As late as May 2020 it was promoting itself in Peer2Peer Finance News with a two page spread, claiming a “zero per cent default rate” and that the scheme should be considered by “investors who have been frustrated by low savings rates and stock market volatility”, despite the reality that anyone who can’t put up with the volatility of mainstream stockmarket investments certainly doesn’t have the risk tolerance for investing in obscure unlisted loss-making nano-cap companies.

Basset & Gold update: 100% losses forecast but general public to bail out investors, administrators confirm

Basset and Gold logo

The administrators of Basset & Gold, the collapsed unregulated investment scheme promoted by West Ham FC, have released their latest update.

Basset & Gold’s funnelled investor funds into payday lender Uncle Buck, via an intermediary shell company, River Bloom UK Services (aka RBUK).

The bad news for investors is that the administrators predict total losses, regardless of how much is recovered from Uncle Buck, due to another River Bloom company, registered in Cyprus, outranking Basset & Gold investors.

Any recoveries in UB are first due to be paid to RBC as they are the senior debt holders, further recoveries after payment in full to RBC are then applied to RBUK and this is where recoveries for Basset & Gold plc bond holders would come from.

The redress procedure will affect the amounts payable to RBC and hence any potential recoveries to RBUK. Based on current information it is unlikely there will be a return, however we will update bond holders in our next report.

The good news for investors is that the Financial Services Compensation Scheme has agreed to bail out one of Basset & Gold’s investors, paving the way for further claims by anyone sold Basset & Gold bonds since 1 March 2018 (including funds which were invested before that date but rolled over afterwards).

We have been advised in recent days that the FSCS has completed the assessment of at least one claim, and found it valid under their rules. Therefore, they will soon be declaring B & G Finance Limited ‘in default’ and commencing the agreement and payment of compensation claims.

Basset & Gold marketed itself to investors while specifically holding out the possibility that they would be compensated by the FSCS if B&G defaulted.

Basset & Gold Facebook post
Basset & Gold Facebook comment to potential investor from 2018.

Mis-selling of Basset & Gold bonds was not an “unlikely eventuality” but part of its business plan. Basset & Gold’s website employed a number of misselling tropes including describing its high-risk loan notes as “cash bonds” and “Pensioner Bonds”, claiming that its structure “protects our investments and your capital” and that its “100% track record” was some sort of assurance rather than completely irrelevant. All these tropes have been identified as misleading by the FCA in the past few years.

As I’ve noted before, this means that B&G attempted the unusual feat of setting the FSCS up as an unwilling guarantor of its unregulated investment scheme in advance. The early signs are that the FSCS is going along with it – unless the successful claims that the administrators refer to turn out to be a small minority.

(Basset & Gold set up a separate limited company to market the bonds which secured regulated status from the FCA in 2018. The investment scheme itself, i.e. the offering of loan notes and the funnelling of that money to Uncle Buck via companies in Cyprus, remained unregulated.)

We can infer that the administrators seem to think that other investors will succeed in their claims, otherwise mentioning the successful claims in their report would achieve nothing accept to give investors false hope. The FCA also gave indications that misselling of B&G bonds had been widespread.

It remains to be seen how many claims of misselling will be accepted by the FSCS, but the general public (who ultimately pay for the FSCS via their bank accounts, loans, pensions and other financial products) should probably brace itself for a very large payout.

The administrators continue to investigate the relationships between the various component parts of the Basset & Gold / River Bloom scheme.

£2.4 million worth of cash has been recovered in addition to an £100k loan made via a P2P platform. Net recoveries currently stand at £1.9 million but this is before the administrators draw their fees, which have been agreed at £1.75 million plus 25% of recoveries.