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Refuting the evidence: London Capital & Finance

Member: Nifa

Investors who put savings into high risk mini-bonds with London Capital & Finance (LCF), totalling £236 million, are fearful about what has happened to their money after the firm’s recent collapse.

Administrators were called in to LCF and the Financial Conduct Authority has launched an investigation into the firm, leaving more than 11,000 people worried about their savings.

In its advertising, LCF appeared to want to be attractive to elderly investors seeking better returns for their savings, with the marketing material depicting elderly savers rather than slick financial experts.

In fact, the Financial Conduct Authority (FCA) ordered LCF to stop using ‘misleading’ advertising just before Christmas and began an investigation into the firm over concerns about some of its products and how they were being marketed.

LCF sold mini-bonds, which are unregulated products, that were advertised as Individual Saving Accounts (ISAs) offering incredible interest rates of up to eight per cent.

This rang alarm bells with a number of financial commentators. It is understood that clients’ money was invested by being lent to a handful of companies in return for security over their assets.

Mini-bonds are unlisted, risky investments and because they are unregulated the investors may not be covered by the Financial Services Compensation Scheme (FSCS).

According to an investigator on the BBC Radio 4’s Money Box, the same names for directors crop up in many of these businesses and further examination has thrown up a number of red flags.

As forensic accountant Roger Isaacs explained on Saturday’s broadcast, having looked at the accounts of the 12 businesses listed at Companies House, many of them have extended their accounting period, so they have not filed accounts for many months or even years, and have changed their name several time. This is not illegal, but there were a number of factors that would justifiably be cause for concern amongst investors.

The fact that the companies to which LCF lent money seem to be connected with each other and to have shareholders and directors in common could mean that the risk is concentrated.

In an interview with Money Box, Roger spoke of the possibility of a deliberate attempt to obfuscate what has been happening and avoid transparency. When asked by the interviewer whether the investors would see their money again, he replied that the “prospect of them getting a recovery is far from certain”.

Unregulated bonds like those sold by LCF are not covered by the compensation scheme that pays out in the event of the collapse of regulated funds, which leaves many LCF Investors in limbo.

If you would like to learn more about the ongoing case surrounding LCF, why not listen to Roger’s appearance on BBC Radio 4’s Money Box Programme by visiting www.bbc.co.uk/sounds/play/m0002kzn

Author: Roger Isaacs 25 February 2019