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.