If 2016 was the Year of Dead Celebrities, 2019 is shaping up to be the year of the Collapsed Investment Scheme.
Starting with the biggest of the lot, the collapse of the £230 million London Capital & Finance, we’ve seen the following schemes switch their lights off in 2019.
All have the following factors in common: they all issued investments not regulated by the Financial Conduct Authority, they all sourced investment predominantly from retail investors rather than institutional sources, and they all went into administration or another form of “official” shutdown in 2019.
Most had defaulted on their obligations before 2019 but the key is that the Government or a creditor officially brought the curtain down through a legal administration process in 2019.
|Scheme||At risk||Date||What happened?|
|London Capital and Finance||£230m||Feb||Assets frozen in January 2019 during an FCA investigation. Went into administration in February 2019. Subsequently revealed by the administrators to be a Ponzi scheme.|
|MJS Capital||£30m||Feb||Collapsed in early 2018. A winding up hearing was held in February and the company was put into liquidation in March.|
|Mederco||£27m||April||Sold various property-related investment securities including spaces in the Bury FC car park. Went into administration in April with 100% losses predicted for unsecured creditors.|
|Store First||£200m*||April||Promoted investment in storage sheds with a “guaranteed” 8% per year. First reports of failure to make guaranteed payments appeared around 2014. Reached an out-of-court settlement with the Government in April 2019, as a result of which four Store First companies (including those with obligations to investors) will be wound up.
*according to Government court submission
|Harewood Associates||£33m||May||Sold property-related investment securities from at least 2013 onwards. Went into administration in May.|
|Park First||£190m+*||May||Sister company to Store First. Shut down by the FCA in late 2017 as an illegal collective investment. Given 18 months by the FCA to return capital to investors who requested it. After 18 months it no longer had the money to return to them, and went into administration.
*according to 2016 Park First marketing material
|Allansons||£20m||May||Offered returns of 50% over 6 – 18 months for investing in litigation funding. Shut down by the Solicitors Regulation Authority in May.|
|Hudspiths||£50m||June||Promised returns of 5% per month. Stopped payments last year and put into voluntary liquidation in June. Investors have launched a bid to convert this to compulsory liquidation.|
|MBI||£80m||July||Offered investment in care homes and hotels. Went into administration in July following an investigation by The Guardian and ITV News.|
|Carlauren||£88m*||July||Offered investment in care home rooms paying 10% per year, as well as a cryptocurrency which could be used to pay for elderly care services. Appointed administrators last week.
*estimated by Safe or Scam, an introducer for insolvency practitioners
That’s just shy of a total of a billion pounds of retail investors’ money at risk of loss, depending on what (if anything) is recovered from the various administrations. And it’s only August.
Now, we need to beware of seeing patterns in what is just randomness. Humans are very good at seeing patterns where none exist.
In 2016, the death of David Bowie at the relatively ripe old age (for a famous musician) of 69 was followed by a year of low-grade hysteria in which every death of a celebrity was hailed as further proof that 2016 was “the worst year ever”. Dispassionate analysis showed that just as many well-loved celebrities died in any other year.
So is this normal? I’m struggling to make a list for 2018 that comes anywhere near the above. Privilege Wealth collapsed for £42m, Essex and London was shut down for £20m… any additions to this list on a postcard please.
It may well mark the worst year for the world of unregulated investment schemes promoted to the public since 2014, when the FCA won its case against Capital Alternatives, and Secured Energy Bonds went to the wall (the UK entity went into administration in early 2015 but the Australian parent collapsed in 2014).
Prior to that the worst year would probably have been 2009, when the global crash did what global crashes do and showed everyone who was swimming naked. Arch Cru (you remember, Greek shipping, Capita Fund Managers, and all that) was one of the highest-profile unregulated casualties in the UK in 2009.
What was that about patterns in randomness?
There’s probably an economics paper to be written there about the nature of 5-year cycles of investor demand in the unregulated sector. But Einstein arguably already wrote the conclusion decades ago: “The definition of insanity is doing the same thing over and over and expecting a different result.”
At time of writing the somewhat-distracted UK Government has not announced any measures to
- require any investment security promoted to the UK public to register with the FCA (as in the USA), and provide full, regular and independently-audited disclosure regarding its financial position
- sack senior FCA management and impose a new senior management team with a mandate to change the FCA’s regulatory culture from the top down, so that it focuses on stopping those who are breaking the rules instead of micromanaging those who aren’t
- reverse the disastrous reforms instigated by the Liberal Democrats in 2011 which allowed anyone to register a limited-liability company in the UK at the click of a button (before 2011 you had to use a registered company-formation outfit)
- close all Intelligent Finance ISAs immediately to new business and reserve tax relief for regulated investments
- close the Companies Act loophole that allows companies to delay filing accounts indefinitely with no sanction
- ban all advertising platforms, broadcasters and publishers (this means you, Facebook and Google) from carrying ads for unregulated investments, on pain of a substantial fine payable to the FSCS
But in the Government’s defence, the Chair of the Treasury Select Committee did make it clear a few months ago that she is very, very cross.
None of the above measures would stop losses to unregulated investments entirely (the UK is a free country and nobody is going to stop me withdrawing all my money and throwing it into the sea), but it would severely reduce losses to retail investors like those detailed above.
Which is the entire point of the billion-pound-plus that the UK public spends every year on the regulatory system via the premiums, charges and interest it pays via regulated companies, which in turn pay for FSCS and FCA levies.
Alternatively we can all just sit here and see what kind of weird and wonderful nonsense collapses in 2024.