Let’s go back to early 2014. Alternative offerings to the investing public are becoming so popular. The rate at which ‘mini bonds’ and SEIS/EIS share schemes are being produced by companies and offered to investors to raise investment and working capital is astounding. The sensible mind would think high risk investments should only be made to those firstly who understand the nature of these investment offerings and secondly, to those who have an income and assets who wouldn’t be risking everything they have if the investment didn’t work out.
That wasn’t the case. Far from it.
These investments were being offered to anyone who preferably had money and would listen by hard-sell boiler rooms taking as much as 40% of the money they raised, company websites, internet advertising and investor meetings in any hotel who would host them.
Things were going swimmingly for companies needing (or wanting) money and before too long, it became an easy source of money for thieves, scammers and con-artists. It was like money literally rained down upon them, by the million.
Before we move on to our last 8 years as a Security Trustee, let’s quickly cover the law and the role of the Financial Conduct Authority (FCA). Under the law, in the form of the Financial Markets and Securities Act these types of investments fall within the supervision of the FCA. But there was a ‘get out of jail’ (in some cases quite literally so) clause: the offerings didn’t need FCA approval at all in the form of an approved prospectus if what was being offered couldn’t be transferred between holders. Secondly, they could only be offered to certain types of educated, experienced or high net worth investors.
So how do you avoid the FCA? That’s probably the easiest bit of all – make them non-transferrable, non-readily realisable investments. The hard part of making money was convincing the investing public to part with their money. Or so you would have thought…
Getting the investing public to part with their money was, in a lot of cases, far too easy. Offer them considerably more than the single-digit percentage their bank or pension fund was making for them. Seeing offerings of 10% per year or more was common place, some offerings were considerably more. We came across an offering from a company seeking investors to part with their money for 22% return in 12 months – guaranteed.
So, how much money was being raised by these offerings? Well, nobody knows, nor will we ever know even a close approximation, but it was billions of Pounds. Companies like Park First, Dolphin Property and London & Capital Finance totalled over a billion Pounds. Those may be the largest three to fail taking investor money with it, but they give a sense of scale.
Inchmead Accountants and our subsidiary, Jade State Wealth, got involved as Security Trustees in early 2014. We wanted to do our part, albeit in a small way to begin with, to put some form of surety and safeguards in place for investors who were investing into these mini-bonds and EIS/ SEIS schemes. The most obvious way to us was to create a security trust that would enable the investors to take possession of the companies assets if the company defaulted on their obligations, hopefully long before the company actually failed and went into liquidation.
It a lot of cases it worked. Over the last 8 years, we have looked after more than 40 offerings totalling a little than £500-million. There were defaults, yes, but unlike those offerings who had no protection whatsoever, at least our clients could take possession of the assets and be first in line for any proceeds but in my view, just as importantly, it held the directors and officers responsible to answer the investors. They had to answer the tough questions if, and when, things went wrong.
We acted for 40 or so investments and 3 failed, totalling about £20-million including Essex and London, which I will come to shortly.
In hindsight, the biggest protection the investors had wasn’t the security trust, it was the first line of defence against money laundering and financial crime. This first line of defence wasn’t what we set to do at all but over time it became our biggest savour, and savour to vulnerable investors. Our company is regulated for anti-money laundering supervision and that puts a significant responsibility and obligation on us to prevent financial crimes.
What is an Accontant?
The term accountant refers to a professional who performs accounting functions such as analysis of accounts, auditing, or financial statements. Accountants work either for accounting firms or for internal accounting departments within large companies.
How did we do over 8 years? We reported 12 companies for fraud and money laundering offences, we refused to allow hundreds of millions of investments being made by investors we deemed to be unsuitable or vulnerable. That didn’t make us popular in some cases but we took our responsibility and obligations very seriously even if that meant negative press or negative reviews and being called many horrible things in social media.
We knew when the time came and it really mattered, and we were the not only the first but the last line of defence against thieving and frauds, what we did for investors would make the difference and it did, more than once.
That brings me to Essex and London. This company came to us having already taken nearly £12-million from thousands of investors. We suspected something was wrong almost immediately, within three weeks. We reported our suspicious and froze their bank account with close to £1-million in it. It didn’t take long to hear from the fraud squad in Essex and the process of investigating the fraud started almost immediately. It was a long and protracted process but worth it in the end. We, together with a number of other witnesses and the Crown Prosecution Service held them accountable and were found guilty and sentenced to a total of 15 years’ imprisonment.
There were some smaller wins too. We have recently been working with a company and the Administrator we appointed to return investor’s money after they defaulted on interest payments. As recently as late March 2022, we procured the return of the 2020 investment made by a vulnerable investor.
It took too long in my opinion for the FCA to take notice and make changes to the law. A case of far too many people having lost money, far too many high profile cases they did nothing about before they were in a corner with nowhere to go but accept changes were needed. That was in November 2019 when, save for a few exceptions, financial promotions were banned completely.
We haven’t been involved in taking on new financial offerings since mid-2017, so a long time ago, but we’re still here doing what we can to protect the investors in the last 4 promotions we have on our books. We won’t switch the lights off just yet, nor will we let our guard down until the investors in these promotions have received their investment back.
