London Capital & Finance fiasco

Semple · 1 Apr 2019 at 14:01

https://www.bbc.co.uk/news/business-47760182

I've been reading about this fiasco quite a bit over the last few weeks.

A quick summary for those who are not familiar with the story:

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.

LCF did not have FSCS protection for these "Fixed Rate ISA's" that they were offering.

The administrators who were appointed to LCF have released a report stating the following:

There were a number of "highly suspicious transactions" involving a "small group of connected people" which led to large sums of investors' money ending up in their "personal possession or control"

A large number of borrowers don't appear to have sufficient assets to pay back LCF investors

Some transactions were "highly suspicious" or had "no commercial benefit" to investors

Investors' money was loaned to a complex web of companies, many of which were controlled by people involved in LCF

A quarter of all the money invested was paid straight to LCF's marketing company Surge

It really doesn't take a genius to work out that a number of high up people in LCF has effectively stolen money from their investors.

Surely the courts should be freezing the assets of these suspected people before they blow the lot on luxury items and make it impossible for any money to be recovered.

Frankly if they're proven guilty of fraudulently taking this money from their investors, they should be personally liable to pay every penny back, even if that bankrupts them.

Just seems shocking that people/companies can get away with things like this these days.

Rroff · 1 Apr 2019 at 14:03

At face value does seem like effectively some high up people have just stolen money. I've been watching this casually to see what the outcome is.

Jokester · 1 Apr 2019 at 14:04

Aye, was following this. SFO are already investigating and on the face of it people involved will end up in court, hopefully prison for this.

dl8860 · 1 Apr 2019 at 14:06

It's literally a scam with a fancy website. When you invest your money, always think about if it's too good to be true. If you know anything at all about savings accounts and investment, a fixed return of 8% is red flag city.

There's a big advertising board on the wall on the waterloo and city line at waterloo end for an investment company that promises some mental return and claims they made something mad like 60% return for their investors last year and to get stuck in. All scams.

dowie · 1 Apr 2019 at 14:10

Pretty dumb for people to stick all their savings in something like this.

Dodgy the way this stuff has been marketed too - presumably the marketing effort itself took a hefty chunk of investor cash, I do wonder if that alone would have meant it was impossible to actually pay out the promised returns even if none of the loans defaulted?

Will be interesting to see what connections there are between the directors of this scheme and the companies that have been recipients of loans from it.

G-MAN2004 · 1 Apr 2019 at 14:11

On one hand, these people are scum for scamming. On the other, a fool and his money....

8% returns? Come on now.

Randomface74 · 1 Apr 2019 at 14:13

Nuke them from orbit.

Jokester · 1 Apr 2019 at 14:14

dowie said:
Dodgy the way this stuff has been marketed too - presumably the marketing effort itself took a hefty chunk of investor cash, I do wonder if that alone would have meant it was impossible to actually pay out the promised returns even if none of the loans defaulted?

25% of the investments went on marketing.

shine · 1 Apr 2019 at 14:24

Jokester said:
25% of the investments went on marketing.

25% was paid straight to the marketing company, I have not see any evidence that the full sum was spent on marketing. This could have been another of the avenues to siphon money.

wolfie138 · 1 Apr 2019 at 14:32

"high-risk"

Semple · 1 Apr 2019 at 14:37

shine said:
This could have been another of the avenues to siphon money.

I'd suspect this is definitely one avenue of siphoning money. 25% of £236million is £59million.

A quick bit of research from 2017 (Nielsen data) shows what the following companies spent on advertising:
- Tesco £89.5mil
- Samsung £66.6mil
- Aldi £22mil
- Virgin Media £31mil
- Vodafone £58.6mil
- Asda £62mil
- Sainsburys £48.5mil

(https://www.campaignlive.co.uk/arti...der-fmcg-giant-cuts-traditional-spend/1462730)

Looking at that above list, i could quite easily say that i've seen many adverts from each of the above companies.

To think that LCF spent on par with Vodafone and Asda, yet i don't think i'd ever heard of them prior to this fiasco.

Jokester · 1 Apr 2019 at 14:39

The money went to a firm called Surge, which on the face of it is a legit business.

Semple · 1 Apr 2019 at 15:15

Jokester said:
The money went to a firm called Surge, which on the face of it is a legit business.

Hmm i think that's questionable. For a company that billed £60million for some advertising, their website looks a bit... empty.

Most advertising companies pride themselves on testimonials from clients they've done work for. Surge's portfolio page is completely blank.

It may well be perfectly legit business, but it definitely looks suspicious.

StriderX · 1 Apr 2019 at 15:19

Semple said:
Hmm i think that's questionable. For a company that billed £60million for some advertising, their website looks a bit... empty.

Most advertising companies pride themselves on testimonials from clients they've done work for. Surge's portfolio page is completely blank.

It may well be perfectly legit business, but it definitely looks suspicious.

Chumocracy in action.

touch · 1 Apr 2019 at 15:39

Semple said:
Hmm i think that's questionable. For a company that billed £60million for some advertising, their website looks a bit... empty.

Most advertising companies pride themselves on testimonials from clients they've done work for. Surge's portfolio page is completely blank.

It may well be perfectly legit business, but it definitely looks suspicious.

Things are different when you want to spend 60 million on advertising though, you dont just search google and choose a company based on how their website looks.

(Not saying there's nothing dodgy about the deal though!)

edscdk · 1 Apr 2019 at 15:44

the 25% marketing bill sounds suspect to me..... the hole thing screams scam... Hopefully those to did the scam (if it was a scam and not a tragic business failure) will go to prison....

I not going to math this but they would need an insane return rate to get the money they spend on advertising back and the investors any return

Rroff · 1 Apr 2019 at 15:46

edscdk said:
the 25% marketing bill sounds suspect to me..... the hole thing screams scam... Hopefully those to did the scam (if it was a scam and not a tragic business failure) will go to prison....

I not going to math this but they would need an insane return rate to get the money they spend on advertising back and the investors any return

Depends - if you are confident of a longer term plan then an upfront big marketing bill can be covered.

krooton · 1 Apr 2019 at 16:05

G-MAN2004 said:
On one hand, these people are scum for scamming. On the other, a fool and his money....

8% returns? Come on now.

My general pension is tracking at 10% up, and my smaller high risk is 47%!

But then theses aren't ISAs.

Rroff · 1 Apr 2019 at 16:16

krooton said:
My general pension is tracking at 10% up, and my smaller high risk is 47%!

But then theses aren't ISAs.

IIRC I was averaging 9% with my investments but I've wound most of that down due a combination of having to be fairly hands on and some Brexit uncertainty, etc. (and needing some cash with moving house).

dowie · 1 Apr 2019 at 16:17

Jokester said:
25% of the investments went on marketing.

I wonder what the interest rates were on the loans they made, have then engineered a situation whereby it would have been impossible for the promised return to be paid even if they utilised all of the capital for loans and had no default. That would in itself surely be fraud even without any conflict of interests between the owners/directors and any companies in receipt of loans.

shine said:
25% was paid straight to the marketing company, I have not see any evidence that the full sum was spent on marketing. This could have been another of the avenues to siphon money.

Possibly but they could easily have quite big expenses if they're not just splurging on advertising but also shelling out high commissions for a bunch of Dell Boy esq phone monkeys to convince all the mugs who invested in the scheme. And of course the marketing company is going to take a profit too.

I suspect the conflict of interest is more likely to be in some of the companies taking the loans - were the even viable businesses, have they done stupid stuff like say lending a million to a the wife of one of the director's for say her mobile hairdressing business and then ended up with her paying herself a fat dividend and then shutting down the company (not saying that is what has happened - obvs in reality could be way more complicated than that).

Semple said:
I'd suspect this is definitely one avenue of siphoning money. 25% of £236million is £59million.
[...]
Looking at that above list, i could quite easily say that i've seen many adverts from each of the above companies.

To think that LCF spent on par with Vodafone and Asda, yet i don't think i'd ever heard of them prior to this fiasco.

I think marketing is being conflated with advertising here - no one has claimed that £59 million has been spent on advertising AFAIK. Marketing can also involve a team of salespeople and if you're talking about financial salespeople who'd perhaps otherwise be at home running a boiler room scam, land banking or coloured diamonds etc.. these are people who can easily earn mid six figures if not 7 figures for the top salespeople... get a whole team of them in (given the scale of this scam) and that is a few million a year spend on salaries/commissions in order to hard sell this stuff via cold calling... (or perhaps not technically cold calling if someone has ticked some marketing box somewhere but more or less the same effect from the perspective of the consumer).