Serious Fraud Office arrests four over collapse of bond firm LCF

Serious Fraud Office arrests four over collapse of bond firm LCF

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The Serious Fraud Office on Monday said it had made four arrests over the collapse of high-risk lender London Capital & Finance.

LCF, which took investments totalling £236 million from 11,600 largely elderly savers, went bust after City regulator, the Financial Conduct Authority, stopped it accepting new money in January. Investors stand to lose 80% of their investment.

The Evening Standard has previously revealed that the business was investing in companies connected by a small number of businessmen to LCF or its sales agent, Surge. 

Controversially, Surge was being paid 25% commission on the funds raised, making it extremely unlikely that LCF would be able to make a profit on its loans. LCF bondholders had been tempted into investing with the promise of annual interest payments of up to 9%.

A Surge spokesman said nobody from the company had received “any contact whatsoever” with the police.

While investors allege it gave them the impression it was lending to large numbers of businesses, it has emerged that the money went to just 12.

The SFO today said it had opened an investigation into individuals associated with LCF and that four individuals were arrested in the Kent and Sussex areas. 

All four have been released pending further investigation.

The SFO said the operation was coordinated with the assistance of the National Crime Agency, City of London Police, Kent Police, Sussex Police and the South East Regional Organised Crime Unit.

The SFO statement added that that investigation into LCF was opened after the FCA referred the case to the National Economic Crime Centre at the NCA’s London headquarters.

The NECC includes officers from the NCA, HM Revenue and Customs, the City of London Police, the Serious Fraud Office, the Financial Conduct Authority, the Crown Prosecution Service and the Home Office.

News of the arrests may further concern investors about the prospects of them recovering their money.

Administrators at Smith & Williamson have repeatedly warned that most of the businesses LCF invested in had so far been unable to provide any proof that they would be able to repay their loans.

S&W’s Finbarr O’Connell said last week that only one – the stock market-listed Independent Oil & Gas – looked likely to be able to repay its loan in full. IoG’s £40 million debt represents the 20% S&W says it hopes to recover.

Investors in LCF bought so-called mini-bonds, which they were told qualified to go into an ISA. This proved not to be the case.

O’Connell was meeting some of the investors today to ascertain if they might qualify for money back from the finance industry’s compensation fund.

Bondholders are hoping to claim on the Financial Services Compensation Scheme, from which the public can claim if regulated investments collapse.

The LCF mini-bonds were not regulated, but LCF was, and investors hope to build a case that they are covered by the FSCS because they allege LCF mis-sold them the products.

Finbarr O’Connell of administrator Smith & Williamson is meeting 40 bondholder representatives at his Moorgate HQ today to assess if they have a case. 

At issue is whether LCF or its sales agent, Surge, actively advised customers the bonds were suitable investments in their individual circumstances or merely took orders from the clients.

The administrator has said Surge was paid 25% commission on the funds it raised for LCF, totalling some £60 million.

The FSCS has said it is not accepting claims in general but is determining whether some may be valid.

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March 19, 2019 |

Hamish McRae: Bigger issues than Brexit for a troubled world economy

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This is going to be another of those weeks when none of us can have any inkling of how the big British political issue of the moment might pan out. But we can have some thoughts about other issues that are, from a global perspective, actually much more important. Here are my top three. 

The first is the nature of the coming slowdown and how policymakers might respond to it.

I was rather stunned to see a client note last night from Andreas Rees, the chief German economist at UniCredit Bank in Frankfurt, saying that there was nearly a 90% chance of recession in the US in the next two years, rising to nearly 100% in the next three. At least that is what the bank’s economic model predicts. 

We know that this coming July the US recovery will become the longest ever, and we know all growth phases come to an end. But we cannot know whether it will end in a blip followed by a swift recovery, or something worse.

Whatever the ending, we know the policy-makers will have to do something, and realistically that something will have to be monetary policy. We cannot expect much from fiscal policy, as another round of tax cuts are unlikely, even if anyone thought they might work.

So might the Federal Reserve reverse its expected rate increases, or even restart QE? Capital Economics reckons this is the end of rate rises for this cycle and the next move will be a cut in rates in early 2020. That reflects a pretty widespread view that the Fed will not raise rates this year, and everyone will be watching to see what is said after its meeting this week. 

The expectation that the Fed has gone dovish may be welcome in the short-term, for it helped the market recovery last week. But there are long-term costs that only gradually become apparent.

In Europe, where rates are even lower and the European Central Bank’s version of QE is to be continued, the recovery has been uneven at best. Cheap money supports asset prices, which is fine for people with the assets. The richer you are the more you benefit. The social costs in increased wealth inequality have become increasingly evident.

Two conclusions come from all this: first, interest rates in the US and Europe will remain low for the foreseeable future; second, this policy will probably not be effective in offsetting the downturn. Mercifully we also know that downturns don’t last forever. Phew. 

The second big global issue to think about is China and in particular, its integration into the global trading system. What is happening there is part of the slowdown story, but only part of it.

Growth has slumped, and the Chinese authorities are figuring out ways to pump it up. Trade tensions with the US have not helped, but there are more embedded problems than that. These include the pile of debts built up in the aftermath of the financial crisis a decade ago, as China boosted demand by a massive investment programme, and the inefficiencies of the state-owned industrial sector.

Of course, the Chinese leadership knows all this. The former governor of the People’s Bank of China, Zhou Xiaochuan, was in London last week talking with Lord King — his former opposite number at the Bank of England, at an event organised by Enodo Economics. What struck me was his caution. One point he made was that tackling both the debt problem and state industry inefficiencies had to be done gradually and carefully. King agreed that financial liberation in China should not be rushed, given the lack of international co-operation on global imbalances.

China tends to get stick for running up large current account surpluses, but these are coming down fast. The country with the biggest surplus is Germany. However, tension between the US and China is not just about trade. It is about intellectual property and more generally about economic leadership. That tension will continue for the next few decades, and the present bout of trade aggro is a small part of a bigger game. 

My third big issue is the direction of high-tech America. There has been huge downgrading since autumn, when Apple and then Amazon passed the trillion dollar valuation point. Microsoft is now the most valuable US company at $890 billion. The question is whether this downgrade is now settled or whether there are further falls to come.

We talk of the sector but its giant members are all very different businesses and so are vulnerable in different ways. Thus Apple is in trouble if people change their phones less frequently, whereas Amazon, Google and Facebook face monopolistic challenges. The new element is political — for example, the call this month by Senator Elizabeth Warren for high-tech giants to be broken up.

Something big is stirring and I am not sure where it will end.

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March 19, 2019 |

Bread Ahead to join retail line-up at Wembley Park

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Wembley property developer Quintain’s new retail hotspot was boosted further on Monday, as Bread Ahead agreed to open a new restaurant, shop and baking school on Olympic Way.

The artisan bakery group, which was founded in 2013 and has three London sites, will expand after signing for a 11,000 square feet site near Wembley stadium.

Its restaurant there will have capacity for 220 diners, and some 15,000 students can annually use the school.

It is the latest retail and leisure tenant at Wembley Park, which is now home to street food specialist Boxpark and the London Designer Outlet. 

Quintain’s retail director Matt Slade said: “The bakery will be an anchor retailer for the area’s residents, whilst its world-famous products will be a draw for our national and international visitors.”

Quintain owns 85 acres in the area, where it has planning consent for 7000 homes, with thousands targeted at renters not yet on the housing ladder. Quintain’s rental brand is Tipi.

Property agents Cushman & Wakefield and Nash Bond advised on the Bread Ahead deal.

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March 19, 2019 |

Rates bills rocketing for West End luxury brands

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The likes of Alexander McQueen and Burberry will face another hike in business rates next month, putting further strain on London’s West End brands, new data showed on Friday.

Shops in Old Bond Street and New Bond Street will be paying more than £90 million in business rates this year, nearly £50 million higher than before the revaluation in 2017, property agent Colliers International said. 

Luxury brands face the rises due to their property values climbing. Burberry’s business rates bill was £935,770 in 2016. It will now be £2.6 million, up from £1.8 million last year. 

Dior paid £1.1 million before the overhaul and is now set to pay £2.7 million, up from £2.2 million last year. High Street retailers have blamed the steep rises in business rates that followed the 2017 revaluation for their financial travails, calling for an overhaul as online competitors such as Amazon pay much less.

John Webber, head of business rates at Colliers International, added: “It would be unrealistic to presume that even the top brands will be immune from such massive increases.”

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March 16, 2019 |

Senior MPs demand answers from watchdog over fall of £236m LCF

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THE leader of Parliament’s powerful Treasury Select Committee today demanded answers from the Financial Conduct Authority and the Treasury over the controversial collapse of lender London Capital & Finance.

LCF raised £236 million selling so-called mini-bonds to 11,600 largely elderly savers which it then invested in high-risk ventures ranging from oil exploration to horse stables and a Dominican Republic property scheme. 

As the Evening Standard revealed in January, the money was only invested after LCF had paid a sales agent 25% commission, meaning returns on the loans from the ultimate borrowers would have to be up to 44% for the business model to work.

LCF became insolvent when the FCA launched an investigation in December and stopped it taking any new money. 

However, the Standard subsequently told of how the regulator had been warned about the firm by investment experts in 2015 and 2017, triggering protests from LCF investors who now fear they have lost most of their money.

Speaking of how “distressing” she found the stories of the investors, MP Nicky Morgan, chairman of the TSC, said she was formally writing to the FCA to ask why it had not acted sooner and demand what were the circumstances that made it eventually take action. 

She is also demanding answers from the Treasury of whether mini-bonds should continue to be unregulated by the FCA.

Many LCF customers say they invested in the company’s high-interest bonds because its marketing literature said it was regulated by the FCA. However, the bonds were not, which many investors have said they had not realised.

Shadow chancellor John McDonnell also called for answers about how the LCF affair had been allowed to happen: “Many of the people who put their life savings into these investments will be asking the question: where was the regulator? It is starkly clear that the current system is not working effectively.”

He called for a review of the regulatory system around such investment schemes, which have flourished due to low interest rates on conventional savings, and new rules allowing non-standard investments to qualify for ISAs.  

Finbarr O’Connell at administrator Smith & Williamson has said he may be able to recoup only around 20% of bondholders’ money from the companies who took LCF’s money. Most of that is a £40 million loan to the AIM-listed company Independent Oil & Gas. 

However, barring another quoted company, Atlantic Energy, other firms who received LCF money have failed to convince him they have the funds or security value for LCF to recoup the loans. 

Speaking of his disappointment at this, he said: “If these borrowers had any concerns for the bondholders they would have been rushing to show me they were good for the money.”

Morgan’s statement in full: “The stories of those affected by the actions of LC&F are distressing, so the FCA is rightly investigating its promotional material for being misleading, not fair and unclear.

“However, the mini-bonds that were promoted by LC&F are unregulated.

“I will be writing to the FCA to understand what prompted the regulator to act, and whether it could have acted sooner. I will also write to HM Treasury to understand whether mini-bonds should continue to be unregulated.”

Source Article from

March 16, 2019 |

Jim Armitage: Regulated or not? This LCF clampdown is long overdue

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For David Wilson, a full inquiry into the collapse of London Capital & Finance would come far too late. The 66-year-old retired social care worker has already lost his savings. 

Likewise Kath Briers, the single parent caring for two children with mental health problems. As a low-income classroom assistant, it will take decades to save up the thousands she has lost to LCF.

The same goes for all 11,600 savers who stand to lose 80% of their cash.

But a full-blown, public probe by the Treasury Select Committee, which I hope is drawing closer, could trigger a much-needed clampdown on the flourishing market for unregulated high-interest bonds. It may even stop this type of financial disaster ever happening again.

The problem that needs addressing is how such products are getting bought by naive investors without the expertise to assess the risks. 

The danger signs of LCF were there if you knew where to look. Company filings revealed it was lending large amounts to a small number of businesses connected by common directors. 

But most of the folk who bought LCF bonds had no idea of those red flags or where to find them. All they saw was the Financial Conduct Authority name on the literature and the 8% interest. 

But the FCA regulated the firm, not the bonds. Confusing? Surely. Not just for the public, but for watchdogs, whose jurisdiction is made unclear. 

We have to end this ambiguity around part-regulated, part-unregulated finance. Firms and their products should be either under the FCA or not. Simple.

Now the committee’s Nicky Morgan is starting to seek answers, I hope the clampdown is finally coming. 

Get stuck in, Nicky.

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March 16, 2019 |

Payments giant Network International launches £2.3 billion London flotation

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London is gearing up for its biggest flotation this year after payments giant Network International picked the capital over Dubai for a potential $3 billion (£2.3 billion) float. 

The Middle East-focused firm expects to float next month in a major boost for London, which has witnessed a dearth of companies coming to market this year as Brexit uncertainty bites. 

This week legal firm DWF came to market with a £366 million valuation, but this deal far outstrips that.  

Chief executive Simon Haslam said: “We have picked London because of the strong investor base, good corporate governance and the amount of emerging funds that are based here. 

“Of course we’ll be watching how Brexit develops but most of our business is done outside the EU, in the Middle East and Africa, and so it doesn’t really affect us.” 

Haslam added that the company has already been around the City, having a number of meetings with large institutional investors. “The meetings have gone well. They are excited about the uniqueness of the business,” he said.

Network International has also appointed industry veteran and former Worldpay chief executive Ron Kalifa as chairman. Kalifa is one of the best-known figures in the payments industry, having led Worldpay for more than a decade.  

A raft of banks have been hired to work on the IPO. Citigroup is the lead adviser, while Goldman, JPMorgan, Emirates NBD Capital, Morgan Stanley and Barclays are acting as bookrunners.

Network International was founded in 1994 and focuses on processing payments in Africa and the Middle East. Last year the company generated $298 million in revenue, and posted earnings of $152 million. 

Payments-processing companies have been highly sought after in recent years as people, particularly in Africa, switch to digital from cash. 

Africa has the world’s fastest-growing population with an emerging middle class and large young population.

Network International services more than 70,000 merchant partners and 200 financial institutions across 55 countries.

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March 15, 2019 |

Capita hails 'snowflake' ads for helping mend army recruitment contract

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Outsourcer Capita said a problem contract to handle British Army recruitment was on the mend after the recent blockbuster “snowflake” ad campaign.

The company said the Recruiting Partnering Project, which was criticised by the National Audit Office in December, was showing signs of improvement after it started working more closely with the Army. 

“We fundamentally changed the working relationship,” said chief executive Jon Lewis. “It’s creating a common sense of ownership rather than dare I say it the master and servant relationship that was the picture of old. We’ve got to be in it together.”

Applications for the British Army are at a five-year high and the ad campaign led to a 78% rise in website visits.

The campaign was criticised in the media for its provocative approach to recruits.

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March 15, 2019 |

Anthony Hilton: Time to trim the UK's army of financial watchdogs

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The UK regulatory system is so good no other country could possibly invent it. So said a colleague, Christopher Fildes, 20 years ago. Since then — and particularly since the financial crisis of 2008 — it’s become even better. Indeed regulatory and compliance professionals are a whole new profession. Put a son or daughter in compliance and you need never worry about them going hungry.

Sir Philip Hampton, of Hampton Review fame, said there were 674 regulatory bodies in the UK… in 2005! Now there are apparently 41 regulatory bodies in the financial sector alone with no fewer then 14 concerned with accountancy, auditing, insolvency and some aspects of corporate governance, according to Prem Sikka, Professor of Accounting at the University of Sheffield.

But are we satisfied? Do we think any in society have had their collar felt in the banking crisis? Were the regulators up to speed with HBOS, when one of its senior people, Paul Moore, alerted the audit committee about his concerns? And what of Carillion which went bankrupt last year? The Financial Conduct Authority, the Pension Regulator, the Financial Reporting Council and the Insolvency Service are all doing some kind of investigation — but what? What do the 41 regulators do, because they very rarely handle obvious cases quickly or efficiently?

It is not just accounting issues: it is offshore taxation, money laundering, bribery, gaming the regulators in rail, water, gas and elsewhere, and the fact that most get round freedom of information inquiries. The regulators and the regulated too often are seen as one.

Part of the problem is indeed that we have so many regulators, they all underlap and leave the difficult stuff to someone else. But it is also the case that many of the bodies have been captured by the very people they are supposed to be regulating. The former chairman of the FCA, John Griffith-Jones, was before that chairman of KPMG when that firm was handling bank audits. There is no suggestion he acted improperly, but should he really have been appointed?

Similarly, Sir Win Bischoff, is still chairman of the FRC. He was formerly chairman of Lloyds and was criticised by Lord Levene in his recent book, Send for Levene, where he alleges Bischoff was given a file saying that the Co-op Bank was in such parlous state that Lloyds should not deal with them. It was just before the episode where the Co-op Bank chairman took crystal meth and the bank did indeed nearly collapse. Bischoff has told me he has no recollection of receiving any file and again there is no reason to doubt him. But why be exposed?

Several other directors are close to the accounting profession and their thinking tends to be too. Thus the FRC thinks its role is to make accounts fit for investors and potential investors, whereas accounts used to be concerned with stewardship, fairness and prudence. Indeed that is what other stakeholders — customers, employees, government — still want. 

Professor Sikka’s take on this is that the entire structure of 41 regulators should be replaced with a revised system which is independent of government departments and directly accountable to parliament. It recommends that the bodies be consolidated into a Business Commission consisting of a number of sub-commissions to eliminate duplication and waste. The consolidation would streamline the system.

The revised architecture would be overseen by supervisory boards and would enable societal stakeholders to exercise strategic oversight — no more “you scratch my back, I scratch yours”.

It would be accompanied by an enforcement division which is independent of the day-to-day operations of the commissions. It would have its own investigative and prosecutor capacity so that it can have in-house expertise, memory and specialisms rather than outsourcing investigations.

An independent ombudsman would adjudicate on disputes between regulators and stakeholders. The whole lot would be accountable to parliament.

It is not what the professions or businesses necessarily want. But it goes where most people would like regulation to go. They want companies to be properly accountable to stakeholders as well as investors. They want firms to be trustworthy, and to be pledged to a purpose. They want transparency and freedom from all taint of political interference. And they want people in charge who are not superannuated captains of finance.

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March 15, 2019 |

Property tycoon Vincent Tchenguiz to put $100m into tech

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Property mogul Vincent Tchenguiz today revealed plans to invest $100 million (£77 million) in “prop-tech” and alternative sectors away from conventional bricks and mortar.

The chairman of investor Consensus Business Group, which has a £3 billion UK property empire, is not looking to buy any more buildings this year amid fears of Brexit denting demand.

Instead he wants to back new prop-tech, insurance-tech and medical-tech firms.

Speaking to the Standard on his superyacht Da Vinci in Cannes for the Mipim property festival, Tchenguiz said: “The UK real estate market is fast-changing. I want to be at the forefront of when property meets tech. I predict big growth from companies that can speed up estate agency work using new digital techniques for surveying buildings, or firms that make drones to inspect property exteriors.“

Tchenguiz already invests in international startups that he wants to bring to Britain.  

These include US and Israel-based Solview which calculates online the solar energy potential of rooftops, and Israel-based BladeRanger, which is developing robots and drones for cleaning skyscrapers. 

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March 14, 2019 |
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