The appeal of mini-bonds (on paper) can’t be denied. With returns of 6.5% to 8%, London Capital & Finance’s offerings certainly attracted many investors, keen to maximise their profits. However, when the company collapsed earlier in 2019, it left over 11,000 customers out of pocket.
The scandal serves as a timely reminder – not just of the problems associated with selling mini-bonds to casual investors, but also of how these situations can escalate if they’re not handled appropriately. Here’s more information.
What happened, exactly?
London Capital & Finance was a well-established financial firm, authorised by the FCA, and with bonds granted tax-free ISA status by HMRC. Thousands of investors put a combined total of £236 million into the bonds on offer – which was what ultimately resulted in the company’s downfall.
The majority of the funds were put into speculative developments, such as oil exploration near the Faroe Islands, or property in the Dominican Republic. £58 million was also given to a marketing company (Surge Financial) for their efforts in promoting the bonds.
Regrettably, the scandal went even deeper than that. Several suspicious transactions were found to have taken place, which led to substantial sums of money being in personal possession of just a small group of people. Some individuals were even arrested for fraud in the Kent and Sussex region, in connection with the case.
FCA to blame?
The FCA have come under serious fire for their mis-handling of the situation. Nicky Morgan, chair of the Treasury select committee, called for a formal independent investigation into the regulator’s failure to act. If this happens, it will only be the second time in history that it’s been investigated in this manner.
The main reason the FCA are being so heavily criticised is due to the fact that they were alerted to the scandal back in 2015, yet permitted London Capital & Finance to continue operating as usual. Neil Liversidge, a financial advisor, performed some checks on the bonds offered by the company, then determined that they were worth “the square root of bugger all”. He got in touch with the FCA immediately, but the regulator failed to respond.
A mis-selling scandal
Sadly, many small investors were caught up in the scandal. Many of them were retirees, who placed their life-savings into the bonds, only to lose everything when London Capital & Finance collapsed.
One woman involved with the case commented that: “Some people stand to lose six-figure sums. Some put [in] all the lump sum money from their pensions. Remember, this was something that said it was ISA-ble and regulated.” (1)
What happens now?
In light of this, the FCA have now announced plans to ban the promotion of mini-bonds to casual investors. This comes into play on January 1st, 2020.
However, this is little comfort for those who have lost large sums of money due to London Capital & Finance’s actions. If you think you may be entitled to compensation, get in touch with our team today on 0808 163 1659 or email email@example.com.