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London Capital & Finance: £236m firm collapses

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Thousands of people who invested in a high-risk bond scheme marketed as a "Fixed Rate ISA" fear they have lost everything after the company collapsed.

London Capital & Finance (LCF), now in administration, took £236m following a marketing campaign that is now under investigation for mis-selling.

Many were first-time investors - inheritance recipients, small business owners or newly retired.

Administrators said they hoped to recoup as much as they could. 

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LCF paid an agent, Brighton-based Surge PLC, 25% commission - which amounted to £60m - to run the marketing campaign 

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Opening subject on today's Moneybox on radio 4

Govt  compensation scheme not accepting applications on this one at present.

Edited by juvenal

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22 minutes ago, juvenal said:

Opening subject on today's Moneybox on radio 4

Govt  compensation scheme not accepting applications on this one at present.

Wow, I wonder why?

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Should have opened a cash ISA and allow inflation to devalue it.......all non cash investments will mean capital is at risk.....there is no guarantee of any return, you may not get back the money you invested.;)

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Reading the document the administrators put out they highlight that LCF would need to make between 44% and 19% a year (depending on ISA length) return in order to pay investors back in full. 

Even Madoff didn't profess to be able to generate that level of return!

"Bondholders are concerned that:"

"The Bondholders believed that their money was being lent to a wide portfolio of UK small and medium sized enterprises (‘SMEs’) but they now find that it has been lent to a small number of complex businesses with substantial risk profiles and which are often dependent on foreign and/or exotic (such as oil & gas) assets"

"that there are corporate transactions involving the Borrowers and subBorrowers which involve companies with similar names, frequent name and accounting date changes, Companies House strike off notices and the same individuals"

 

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Too good to be true but too stupid(greedy) to see. I think FCA is partially responsible too.

 

 

 

Independent financial adviser Neil Liversidge wrote to the FCA in 2015 warning it about the scheme.

Mr Liversidge said: "The way it was promoted, a great many people could have fallen for this.

"A client brought it to us but when we looked into it there was a lot of interconnection between the people they were lending to and the management of LCF themselves.

"We warned our clients off and the same day we wrote to the regulator raising our concerns about the promotion."

Ms Anderson said: "We feel let down - we trusted this company because they had been regulated and authorised - we then found that they weren't even allowed to manage ISAs.

"The FCA should have known that before they allowed us to buy these products."

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It is. I see. That's dodgy. Rather like Gordon Browns govt thinking all the banks were secure in 2007.

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2 hours ago, prozac said:

Wow, I wonder why?

These savings vehicles like all peer to peer lenders/innovative finance isas/bond are not  FSCS protected - as is made clear when you invest. So the £85k protection does not apply.

If they go under you lose your cash - no different to investing in the stock market/pensions/stocks and shares isa when the stock market falls.

I would not be impressed to see a bailout - but if would be nice to see the directors prosecuted, have their property confiscated to bailout the investor losses or at least banned from being involved in the financial sector for life! 

I see as I post here an advert to be put into a prize draw to win £20,000 if you invest £2500 in such a product by 5 April.

 

 

Edited by MARTINX9

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1 minute ago, MARTINX9 said:

These savings vehicles like all peer to peer lenders/innovative finance isas/bond are not  FSCS protected - as is made clear when you invest. So the £85k protection does not apply.

If they go under you lose your cash - no different to investing in the stock market/pensions/stocks and shares isa when the stock market falls.

I would not be impressed to see a bailout - but if would be nice to see the directors prosecuted or at least banned from being involved in the financial sector for life! 

I see as I post here an advert to be put into a prize draw to win £20,000 if you invest £2500 in such a product by 5 April.

 

 

However given they were investing in companies with very close ties to the vehicle itself, then surely the FCA shouldn't have approved it, even without the compensation scheme.

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1 hour ago, Si1 said:

However given they were investing in companies with very close ties to the vehicle itself, then surely the FCA shouldn't have approved it, even without the compensation scheme.

Yeah, this. I looked at this and didn't invest, but I would have expected the FCA to regulate its claims.

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 A very similar sounding company,  " London Finance and Investment ", is listed on the LSE epic code LFI.

It is my most boring share holding. They have a portfolio of shareholdings in large and small companies.

The directors also have a NEX exchange company called " Western Selection "

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15 hours ago, MARTINX9 said:

These savings vehicles like all peer to peer lenders/innovative finance isas/bond are not  FSCS protected - as is made clear when you invest. So the £85k protection does not apply.

If they go under you lose your cash - no different to investing in the stock market/pensions/stocks and shares isa when the stock market falls.

I would not be impressed to see a bailout - but if would be nice to see the directors prosecuted, have their property confiscated to bailout the investor losses or at least banned from being involved in the financial sector for life! 

I see as I post here an advert to be put into a prize draw to win £20,000 if you invest £2500 in such a product by 5 April.

Agree completely. If someone invests for an 8% return under these circumstances then the risk is seemingly obvious otherwise we would all invest ie 100% of the uk, so no bail out. It is like the investors think the rest of us earning 1.4% are stupid suckers. If there is a bail out then I want my money back for any loss in shares I may have suffered. 

I agree the directors should be prosecuted and never be allowed to run a business again....ever. 

Many people seem to run business to extract the maximum out of them they can. Even housebuilder etc make £1bn and then after a ONE bad year are close to bankruptcy. It equates to the worst household finance keeping ever.

Add to the mix an example of ‘bad practice’ such as this case then the risk of loss seems almost inevitable. 

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11 minutes ago, Pop321 said:

Agree completely. If someone invests for an 8% return under these circumstances then the risk is seemingly obvious otherwise we would all invest ie 100% of the uk, so no bail out. It is like the investors think the rest of us earning 1.4% are stupid suckers. If there is a bail out then I want my money back for any loss in shares I may have suffered. 

I agree the directors should be prosecuted and never be allowed to run a business again....ever. 

Many people seem to run business to extract the maximum out of them they can. Even housebuilder etc make £1bn and then after a ONE bad year are close to bankruptcy. It equates to the worst household finance keeping ever.

Add to the mix an example of ‘bad practice’ such as this case then the risk of loss seems almost inevitable. 

This is where I'm dubious about constantly bailing them out with ever lower interest rates and never ending QE. It becomes an addiction.

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17 hours ago, Si1 said:

Was it a regulated investment or not?

The investment was not regulated. See: https://www.fca.org.uk/news/news-stories/london-capital-and-finance-plc-enters-administration

Quote

Did LCF need to be authorised?

Firms are required to be authorised by the FCA if they undertake any of the regulated activities listed in the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (the Order). Authorised firms are subject to a set of overarching principles and rules issued by the FCA. These principles and rules have to be followed when an authorised firm is carrying on regulated activities in the UK. The Order excludes certain activities from its scope.

Issuing mini-bonds does not normally involve the carrying on of a regulated activity. Therefore, LCF did not need to be authorised to issue the mini bonds but did need to be authorised to issue the promotion of the mini bonds.

 

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3 hours ago, Pop321 said:

Many people seem to run business to extract the maximum out of them they can. Even housebuilder etc make £1bn and then after a ONE bad year are close to bankruptcy. It equates to the worst household finance keeping ever.

Add to the mix an example of ‘bad practice’ such as this case then the risk of loss seems almost inevitable.  

This seems common in the UK. Start a "business", take payments, spend only as much as needed to look plausible while the rest you give to a mate to spend on Beemers and Mercs than declare bankrupcy. Rinse and repeat. I once stopped someone losing almost 40k on a company which went (unsurprisingly) bankrupt a few months later. The UK is lax on this.

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23 hours ago, prozac said:

LCF paid an agent, Brighton-based Surge PLC, 25% commission - which amounted to £60m - to run the marketing campaign 

What the heck? This smells very fishy.

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1 hour ago, Unknown user said:

What the heck? This smells very fishy.

Yep. Surge PLC are probably under the same shell company as LCF, and offshore to boot. 

 

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5 hours ago, Arpeggio said:

This seems common in the UK. Start a "business", take payments, spend only as much as needed to look plausible while the rest you give to a mate to spend on Beemers and Mercs than declare bankrupcy. Rinse and repeat. I once stopped someone losing almost 40k on a company which went (unsurprisingly) bankrupt a few months later. The UK is lax on this.

Mention this as despite how old, history is often a good teacher and a clue as to how some things can remain shyte for generations.

In around 1982 there was an enquiry of some kind into creditors being shafted in insolvency of limited companies. 

After a lot of hot air and also much common sense the suggested tightening was rejected on the grounds it would "stifle enterprise".  The Tories really just wanted less risk for the so called entrepreneurs and more taken by suppliers. (Banks avoid taking any risks by always getting security and personal guarantees).

Suppliers of course must take steps to protect themselves but if you've ever tried to practise any form of credit control you'd know that so often by the time you find out that your customer is struggling he'll get any money out of the company rather than pay you.

There was a suggestion too that the veto came from a "very high level".

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